{"id":19474,"date":"2022-03-04T07:30:39","date_gmt":"2022-03-04T12:30:39","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19474"},"modified":"2022-03-04T07:30:39","modified_gmt":"2022-03-04T12:30:39","slug":"just-because-its-cheap-doesnt-mean-its-worth-it","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/just-because-its-cheap-doesnt-mean-its-worth-it\/","title":{"rendered":"Just Because It\u2019s Cheap, It Doesn\u2019t Mean It\u2019s Worth It"},"content":{"rendered":"

With everything going on these days, it seems like everyone’s talking about investing internationally.<\/p>\n

Family members and friends have been calling… wide-eyed and emotional, asking if it’s a good time to invest in Russian stocks.<\/p>\n

We even had some of our readers write in saying, “Jeff! Please answer this (or have Eric or Imre send their thoughts). What about Russian energy stocks? Don’t they look like a fantastic fire-sale to you?”<\/p>\n

So, here’s my take…<\/p>\n

It’s never a good time to invest into corrupt and\/or repressive countries.<\/p>\n

It’s a personal investment policy… and aside from being a matter of principle, it’s a matter of economics.<\/p>\n

There are just better, and less riskier opportunities in countries where laws are not applied ad hoc.<\/p>\n

The ad hoc application of the law is the definition of uncertainty, and uncertainty is the enemy of your portfolio’s returns.<\/p>\n

China can cancel entire sectors at will, as they did last year.<\/p>\n

Or make the founder of one their biggest companies disappear like they did with Jack Ma.<\/p>\n

And as we recently saw with the Russian currency (the ruble), Russia can extract most of its citizens’ wealth in a matter of days. The Ukrainian invasion wiped out 42% of the ruble’s value.<\/p>\n

That’s the problem with these countries… they extract wealth from<\/em> their population.<\/p>\n

It’s the other way around in the U.S., where the population generates<\/em> all the wealth.<\/p>\n

That’s why countries like Russia, China, and areas of Latin America have a big “brain drain” problem (when the smartest, most capable people immigrate to Western countries).<\/p>\n

And you can see the difference when you compare returns of emerging markets versus U.S. stocks.<\/p>\n

Take a look at the returns of some of the big economies classified in the top ten as the most corrupt or repressive compared to the SPDR S&P 500 ETF Trust (SPY)…<\/p>\n

\"Chart\"<\/div>\n

I believe this chart answers the long-term question. I just don’t see the point in investing overseas.<\/p>\n

Not only did the stocks in our own backyard outperform, they did it with less risk, as measured by the Sharpe ratio (a measure of risk-adjusted return).<\/p>\n

Think of this ratio as the grey hair indicator… the higher the Sharpe, the less grey hair.<\/p>\n

In addition, the massive commodity bull<\/a> market we’re currently in should have resulted in better returns for exporting countries like Brazil.<\/p>\n

But it didn’t.<\/p>\n

So they don’t work as commodity proxies, and<\/em> they don’t outperform the returns of the good ol’ USA.<\/p>\n

Again… what’s the point?<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

But there’s a difference between a short-term trade and a core allocation in a portfolio.<\/p>\n

But even from the point of view of a short-term trade, I don’t think the VanEck Russia ETF (RSX) is a good idea.<\/p>\n

And I completely understand the interest right now… Russian stocks are definitely “on sale.”<\/p>\n

Are they worthless? No.<\/p>\n

Is a penny you find on the floor worthless? Also no.<\/p>\n

But does that mean you should even bother to pick it up?<\/p>\n

The problem with buying Russian stocks now is that every Western country and hedge fund is trying to get out at the same exact time. And a lot of them are stuck with the Russian government banning sales of stocks.<\/p>\n

This is a classic case of not trying to pick up a “falling knife<\/a>” – when prices look cheap, but get<\/em> even cheaper. For instance, it was cheap yesterday and today its 13% cheaper.<\/p>\n

Based off its implied volatility<\/a> (around 285), a 65% drop from current<\/em> levels in one day<\/em> is completely within reason.<\/p>\n

(Remember: Implied volatility is the market’s forecast of a likely movement in a security’s price. It’s a metric used by investors to estimate future fluctuations (volatility) of a security’s price based on certain predictive factors.)<\/p>\n

That means RSX can easily trade for around $2.50 per share before all is said and done.<\/p>\n

You see, finance is driven by opportunity cost…<\/p>\n

I’d rather buy bitcoin, a fallen hype stock with big potential like Roblox, or even blindly throw a dart at The Wall Street Journal<\/em> and invest in whatever ticker I hit.<\/p>\n

At least this way, my odds are better than catching a falling knife.<\/p>\n

Regards,<\/p>\n

Eric Shamilov
Analyst, Market Minute<\/em><\/p>\n

<\/p>\n

Reader Mailbag<\/h2>\n

What has been your experience trading internationally? Do you focus mostly on U.S. stocks?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Everyone\u2019s been asking if now\u2019s a good time to buy Russia…<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[13],"newsletter-type":[],"ticker":[],"class_list":["post-19474","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-eric-shamilov"],"acf":[],"ai_tts_audio_outdated":false,"ai_tts_legacy_post":false,"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19474","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=19474"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19474\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=19474"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=19474"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=19474"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=19474"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=19474"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=19474"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=19474"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}