Going Global With Equities: Make Investment Gains Across Frontiers

Rating:
Summary: A handbook for investor self-discipline
Review: This book offers many fascinating insights into the mechanics and psychology of investing. At the heart of the book is a paradox: you can make money out of your own ignorance and that ignorance can even protect you from investment mistakes and manias. Particularly interesting is Melton's system of protecting against your own and most advisors' ignorance by using his world equity market asset allocation model. He strongly advises against overweighting your investments in your home market, the one usually favored by home country financial advisors. According to Melton professionals and amateurs are basically ignorant in predicting market movements and who can argue with this given the shocks of the last three years? Spending too much time analyzing world markets doesn't necessarily make one a more successful investor. Overweighting any one market in your portfolio is dangerous. After arguing that equities are the best long-term investment, Melton claims that keeping to a disciplined regional (North America/Europe/Asia/Emerging Markets)asset allocation ratio and a disciplined country allocation ratio within these regions actually lowers the overall risk of a portfolio and disciplines investors not to overweight positions in their portfolios. Melton provides historical examples of the diversity from year to year of single country and regional stock market returns.
Does Melton's method work? Well, it has done for me. I set up a small mutual fund portfolio based on the Melton Model using about 15 country funds (Melton would recommend about 25 but my finances didn't stretch that far). The returns have been good in areas I would never have considered before reading this book (Australia, for example)and in areas we are now often being told to steer clear of (the U.S.A., for example). Left to my own devices I would have probably avoided investing in those countries but because of Melton's disciplined asset allocation approach I resisted short term psychological caveats and the market analysis of the business community and went ahead having faith in Melton's paradoxical view that you can exploit your own ignorance to invest successfully while at the same time avoiding the madness of crowds (and the investment community), by investing in a disciplined manner.
I intend to remain a disciplined investor and this book has set me on the right path.