Investing in Argentina and Conquering Your Fear of Risk

“I came here because I felt that my children would have a better future here than in Britain,” said a colleague at lunch yesterday.

“It’s very hard to live well in Britain; the country is too crowded. And things are too expensive. If you want a decent house at a decent price, you have to go way out of London. Even then, they’re not easy to find. And then, you spend half your life traveling back and forth to work.

“But there’s something else. I think Britain’s glory days are past. The economy might grow in absolute terms. I hope so. But it is unlikely to grow as fast as Argentina or Brazil or any one of dozens of overseas economies.

“That’s true for America too. I don’t think the US is finished, by any means. But if you want to give your children the best combination of lifestyle and economic opportunity, there are better places to live.”

Few people would bet on Argentina’s financial future. The country is a serial inflator…prone to self-inflicted financial wounds. It has shot itself in the foot so often, it hardly has any feet left!

Most people would say that investing in Argentina is ‘too risky.’

But that just goes to show that people don’t understand risk. They look at the past and use it to measure the future. What they don’t realize is that risk in financial markets is not like rainfall or earthquakes.

Earthquakes are completely indifferent to what we think about them. But the financial markets are more sensitive than a poet. People who’ve lived through financial crises don’t want to see another one. Or, to put it more specifically, if you’ve just been through a bear market you’re not likely to pay too much for stocks. You’ll think it’s “too risky” to buy expensive stocks. So, stocks will not become expensive. The risk of another crash will be low.

Germans lived through a period of hyperinflation in the ’20s. To this day, they are deathly afraid of rising consumer prices.

People who are accustomed to stable prices…and a rising stock market…have a different attitude. Analysts look at their history and pronounce the market “safe.” But it’s actually very risky…because prices are high and investors are complacent.

The riskiest markets are probably those judged safest by the analysts. The safest are those thought to be risky.

Bill Bonner
for The Daily Reckoning