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Covered Put Writing: Not What You Think

When you mention put writing to someone, their eyes widen, pupils dilate, their brain shuts down and tohu vavohu (Old Testament Hebrew term meaning “chaos” or “pandemonium” and still used in modern Hebrew language) ensues. This article will put right put writing, relieving anxiety, stress and possibly, believe it or not, even make you a fan of put writing. A couple of definitions and explanations are needed first. To begin with, put writing in this article is about “covered put writing”. To make things a little less complicated, the puts discussed in this article are European puts, the cash position earns no interest (i.e., interest rates are zero) and dividends, to the extent they matter, are ignored (i.e., assumed to be zero) Definition 1 : A covered put position is the combination of 1) a short put position and 2) a cash position equal to the maximum loss of the short put position. a) A covered put position is equivalent to a capped long position in the underlying stock. The covered put position will decline in value as the underlying declines in value and will increase in value as the underlying increases in value. b) The maximum amount a covered put position can earn is capped at the premium received from selling the puts. c) The maximum amount a covered position can lose is equal to the maximum loss of the short put position less the premium received from selling the puts. Definition 2 : The maximum loss of a short put position is the put strike times the number of options sold. Here is an example of a covered put position: An investor enters into a covered put position by first selling 1 put option on the S&P 500 Index. The put option strike is 1,880. The investor then allocates a cash position of $1,880.00 to cover his maximum loss. The $1,880.00 cash position is obtained from multiplying the put strike by the number of options sold or 1,880 x 1. This covered put position ensures that even if the S&P 500 Index goes to zero, the investor always will have enough cash to cover any loss when the put options expire and still have the premium from selling the puts. Now that we’ve got the basics out of the way, time to get to the meat of the matter. Below are what I call the ” maxims ” of covered put writing. They may surprise you. Maxim 1: A covered put position, over the term of the put (i.e., before the put option expires), is always a more defensive position than owning the underlying outright. That’s right, always . This is because the premium received from selling the put options provides a “buffer” against a declining underlying. Owning the underlying outright provides no such buffer. Maxim 2: The maximum gain from a covered put position over the term of the put is the total premium received from selling the puts. If the premium received is 2% (as measured as a percentage of the cash position), then 2% is most the covered put position can return over the term of the put, no matter how much the underlying increases in value Maxim 3: A covered put position is theoretically identical to a covered call position where both the puts and calls sold have the same strike . If you’re comfortable or familiar with covered call strategies, then you are, by definition, comfortable with covered put strategies . Covered put positions, however, can provide certain advantages over covered call positions which I will detail later. A Simple Systematic, Rolling Covered Put Writing Strategy All put options have expiration dates. When the put option in a covered put position expires, it must be “rolled” into a new put option with a new strike and expiration date. One simple Systematic Rolling Covered Put Writing Strategy (SRCPWS) is to sell and roll one-month, at-the-money put options. This strategy, it just so happens, is used by the CBOE S&P 500 PutWrite Index (PUT) . This index, which has been in existence since 1986, sells one-month, at-the-money puts on the S&P 500 Index on a monthly basis while investing its cash position in one-month and three-month T-Bills (The CBOE also has a covered call index, the CBOE S&P 500 BuyWrite Index (BXM) There are two listed ETFs available that follow a simple Systematic Rolling Covered Put Writing Strategy on the S&P 500. The first is the ALPS Enhanced Put Write Strategy ETF (NYSEARCA: PUTX ) and the second is the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (NYSEARCA: PUTW ) . Both write one-month at-the-money puts on the S&P 500 every month and 100% collateralize the put options sold by investing their cash positions in either short-term T-bills or short-term investment-grade corporate notes. The Performance Attributes of a Systematic Rolling Covered Put Writing Strategy (SRCPWS) are best described by the “corollaries” presented below. To help illustrate these corollaries, I will use the historical performance of PUT versus the historical performance of the S&P 500 Total Return Index (SPTR). Corollary 1 of Maxim 1 Corollary 1 of Maxim 1 for a Systematic Rolling Covered Put writing strategy (such as implemented in PUT): If the underlying declines in value over consecutive “roll periods” (monthly in the case of PUT), an SRCPWS will never have a more negative return than an outright position in the underlying and will always outperform the underlying. – A corollary to the corollary is that the volatility of the SRCPWS will almost always be lower than the underlying in this scenario. Under this scenario, the premium received from selling options each roll period provides a downside buffer, allowing the SRCPWS to always outperform the underlying. A real life example of this is given in the chart below using the actual performance of PUT and SPTR (monthly data, using third Friday of each month). From 8/15/2008 to 11/21/2008, SPTR declined falling 39.3%. PUT over the same period fell only 30.4%. In addition, the annualized daily volatility of PUT was 54.1% while SPTR’s was 62.7%. Click to enlarge Another real-life example for this scenario is worth presenting and is presented in the chart below. In this example, SPTR had a negative return while PUT’s return was positive. From 12/19/2008 to 3/20/2009, SPTR declined each month, falling 12.7%. PUT over the same period increased 0.6%. In addition, the annualized daily volatility of PUT over this time period was 26.6% while SPTR’s was 38.3%. In this example not only did PUT outperform SPTR, but it also had a positive return while the underlying, SPTR, had a negative return. Click to enlarge Corollary 1 of Maxim 2 What if the underlying increases in value? That’s Corollary 1 of Maxim 2 : If the underlying increases in value over each “roll period” (monthly in the case of PUT), the SRCPWS will always have a positive return but may or may not outperform the underlying. – Again, a corollary to the corollary, is that the volatility of the SRCPWS will almost always be lower than the underlying in this scenario. Under this scenario, the return of the SRCPWS is capped by the total premium received from selling its options each roll period. If the underlying’s performance is less than the premium received, the SRCPWS will outperform the underlying. If the underlying’s performance is greater than premium received, the SRCPWS will underperform. For this scenario (i.e., where the underlying increases) two real life examples are needed. The first example, given in the chart below using the actual performance of PUT and SPTR, is for the case where the SRCPWS doesn’t outperform the underlying. From 3/20/09 to 01/15/2010, the SPTR increased by 50.48%. PUT over the same period increased only 35.19%. In addition, the annualized volatility of SPTR over this period was 69.3% while that of PUT was under half that value at 33.2%. Click to enlarge The second example is for the case where the SRCPWS does outperform the underlying and is given in the chart below using the actual performance of PUT and SPTR. From 1/20/2006 to 4/21/2006, the SPTR increased, steadily, by 4.43%. PUT over the same period increased 4.85%. In addition, the annualized volatility of PUT over this period was 4.97% while the annualized volatility of SPTR was 9.37%, over twice as much as PUT’s. Click to enlarge Of course, underlyings don’t just always go up or always go down. Markets (and underlyings, whatever they may be) may trend up or down, but they almost always are “volatile” around that trend. This brings me to Corollary 2 of Maxim 1. The SRCPWS may recover from a period of negative returns more slowly than the underlying. This corollary is actually a combination Corollary 1 of Maxim 1 and Corollary 1 of Maxim 2 . Corollary 1 of Maxim 1 says the SRCPWS will always outperform when the underlying declines in value while Corollary 1 of Maxim 2 says the SRCPWS may not outperform the underlying when the underlying increases in value. – Again, a corollary to the corollary, is that the volatility of the SRCPWS will almost always be lower than the underlying in this scenario. This makes sense because the return of the SRCPWS during any roll period is capped at the premium received from selling puts while the return on the underlying is not. How much more slowly the SRCPWS recovers than the underlying depends both on 1) how much the underlying increases over a given period of time and 2) the premiums received from selling the puts over that same period of time. The chart below presents a real-life example using the actual performance of PUT and SPTR. The chart shows that from 9/21/12 to 11/16/2012, SPTR declined 6.51% while PUT declined only 3.63%. The chart then shows that from 11/16/12 to 3/15/13 SPTR increased 15.65% while PUT increased 6.17%. Over the entire period, SPTR increased 8.12% while PUT increased 2.32%. In addition, the volatility of PUT over the entire period was 6.73% while the volatility of SPTR was 11.63% Click to enlarge Non-Zero Interest Rates – Treasury Bill or Investment-Grade Short-Term Corporate Note Investment In the beginning of this article, I assumed interest rates were zero to make things less complicated. PUT, however, invests all of its cash in one-month and three-month T-Bills. In this way, the return PUT generates is augmented by the interest income earned on its T-bill investments. Short-term interest rates are at historical lows but have been at much higher levels significantly contributing to the return PUT generated. Because PUT invests in short-term Treasury bills, when or if interest rates rise, the return generated by PUT from interest income will increase. Both PUTX and PUTW invest most of their cash in interest-bearing instruments. PUTX invests its cash mainly in short-term investment-grade corporate notes. PUTW invests its cash mainly in one-month and three-month T-bills. These investments in short-term investment-grade corporate notes or short-term T-bills collateralize (i.e., cover) the put options sold. Volatility, Downside Volatility and Downside Risk Adjusted Return Volatility: As is mentioned throughout this article, an SRCPWS will almost always have a lower volatility than its underlying. For all practical purposes, it’s fair to say that an SRCPWS will always have a lower volatility than its underlying because the change in value of the put option as a percent of the cash position is almost never greater than that of the underlying on any given day. It is possible, though, in unique circumstances for this not to be the case. And if the SRCPWS invests its cash in interest-bearing instruments, it’s also possible they could add to the volatility of the SRCPWS. Below is a table giving the annualized monthly volatility of PUT and SPTR over different time periods. The table shows PUT is about 65% as volatile as SPTR. Downside Volatility : Downside volatility is a measure of the volatility attributable to negative returns. Many investors believe that volatility from positive returns is not relevant to defining the risk of an investment and that the only important volatility is that generated from negative or adverse returns. Because an SRCPWS has an asymmetric return profile (i.e., can have a greater negative return than positive return in a given roll period), comparison of the downside volatility between the SRCPWS and its underlying is important. The downside volatility of an SRCPWS should almost always be less than that of its underlying for the same reason its volatility is almost always less than its underlying. The table below gives the annualized monthly downside volatility of PUT and SPTR. The downside volatility is ca lculated using a minimum acceptable return (MAR) equal to the average monthly return over the relevant time period (the average monthly return is identical to the “mean” used in the calculation of volatility above). The downside volatility of PUT is slightly less than 80% of the downside volatility of SPTR. Sortino Ratio : The Sortino Ratio is the “Sharpe Ratio” for skewed or asymmetric return profiles. It is a measure of the risk-adjusted return for these type strategies. However, many investors believe the Sortino Ratio is better than the Sharpe Ratio for all investment strategies because it does not penalize positive returns when “upside” volatility is high. The Sortino Ratio is calculated in the same way as the Sharpe Ratio but instead of using volatility , it uses downside volatility . Below is a table showing the Sortino Ratio and Sharpe Ratio for PUT and for SPTR. The downside volatility used in the Sortino Ratio was calculated using an MAR equal to the average monthly return over the relevant time period. Both the Sharpe Ratio and Sortino Ratio were calculated using a risk free rate (or target return) equal to the average three-month CMT rate over the relevant time period. This was done for the sake of simplicity and does not affect the comparison. There are two observations of interest. First, the PUT and SPTR Sortino Ratios are greater than the PUT and SPTR Sharpe Ratios for each time period. Second, the PUT Sortino Ratios are less than the SPTR Sortino Ratios in the three- and five-year time periods but are greater than the SPTR Sortino Ratios in the 10- and 28-year time periods. The first observation makes clear that the downside volatility is always less than the volatility for both PUT and SPTR. The second observation reveals that PUT’s risk-adjusted return (as measured by the Sortino Ratio) was worse than the risk-adjusted return of SPTR in both the three- and five-year time periods but better in the 10- and 28-year time periods. This occurred mainly because SPTR’s downside volatility decreased relative to its “overall” volatility in the three- and five-year periods while its return was better than PUT’s. Advantages of Covered Put Writing Over Covered Call Writing Earlier in this article I presented Maxim 3 : A covered put position is theoretically identical to a covered call position where both the puts and calls sold have the same strike . I further stated that covered put writing may provide certain advantages over covered call positions. When comparing the historical performance of the CBOE S&P 500 BuyWrite Index (a covered call index on the S&P 500 Index) and PUT, PUT handily outperforms. The chart below shows the PUT and BXM performance from 3/3/2006 to 3/4/2016: Click to enlarge Over this 10-year time period, PUT outperformed BXM by almost 26%. There are three reasons why this may have occurred: 1) In a covered call strategy, the number of options sold equals the number of shares owned. If BXM owns 100 shares of the S&P 500 Index, then it sells 100 options on the S&P 500 Index. PUT, however, does things slightly differently and, as a result, sells slightly more options. This is because PUT is collateralized by cash or cash equivalents and not shares of the S&P 500 Index. PUT sells a number of options such that the maximum loss (see above for definition) in each roll period is equal to the cash position plus the premium received from selling options. This means PUT takes in more option premium than BMX each roll period and can have greater returns as a result. 2) PUT sells put options that are at-the-money or slightly out-of-the-money. BXM does the same with its call options. However, slightly out-of-the money put options tend to have a slightly higher premium than slightly out-of-the-money call options. This can mean PUT takes in more option premium each roll period. 3) BXM owns shares of the S&P 500 Index and is short call options. PUT is long T-bills and short put options. PUT earns interest on the cash invested in T-bills while BXM earns dividends from its S&P 500 shares. It’s possible that interest income, all other things the same, can be greater than dividend income. Putting It All In Perspective Covered put writing is theoretically no different than covered call writing. If you’re comfortable with covered call writing, then you’re comfortable with covered put writing. Covered put writing may provide better returns that a similar covered call strategy. A covered put writing strategy can be considered a defensive strategy relative to an outright investment in the underlying. A covered put writing strategy is almost always less volatile and may provide better risk-adjusted returns than an outright investment in the underlying There are two broad market covered put writing ETFs available, ticker symbols PUTX and PUTW. Both write one-month at-the-money puts on the S&P 500 every month and 100% collateralize (i.e., cover) the put options sold by investing their cash positions in either short-term T-bills or short-term investment-grade corporate notes. Remember, the S&P 500 Index, the S&P 500 Total Return Index, the CBOE S&P 500 BuyWrite Index and the CBOE S&P 500 PutWrite Index are indexes. You cannot invest directly in an index Jeff Klearman is the Chief Investment Officer of Rich Investment Solutions and a Registered representative of ALPS Distributors, Inc. Rich Investment Solutions is the sub-advisor to the ALPS U.S. Equity High Volatility Put Write Index ETF (NYSEARCA: HVPW ) and the ALPS Enhanced Put Write Strategy ETF. ALPS Advisors, Inc. is the Investment Adviser to HVPW and PUTX, and ALPS Portfolio Solutions Distributor, Inc. is the Distributor for HVPW and PUTX. ALPS Advisors, Inc., ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are all affiliated entities. An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1-866-759-5679 or visit alpsfunds.com . Read the prospectus carefully before investing. WisdomTree Funds are distributed by Foreside Fund Services, LLC. in the U.S. only. Click here to view or download prospectus for Wisdom Tree CBOE S&P 500 PutWrite Strategy Fund. We advise you to consider the fund’s objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest. An investment in the Funds involves risk, including loss of principle.

Is Security Analysis Dead? Why Ben Graham Eventually Embraced Efficient Markets

Could the man who literally wrote the book on security analysis actually have thrown it all away? If you’re a value investor, or have already requested free net net stock picks , you’ve undoubtedly heard of the father of value investing himself, Benjamin Graham . Most investors come to Graham through the writings of Warren Buffett, and for good reason. Buffett has continuously called Graham the biggest investing influence in his life, so it’s only natural to pay homage to the legendary teacher. But Graham was also a legendary investor and prolific writer, producing two of the best investment books books ever written: Security Analysis and the Intelligent Investor. Both went on to become long running series. What many value investors are less aware of, however, is that in one of the last seminars given before his death, Graham actually rejected the idea that detailed security analysis added much value. Those comments were made available in an article titled “A Conversation With Benjamin Graham,” published in the Financial Analyst Journal, and are definitely surprising given Graham’s focus on dissecting a firm’s financial statements to uncover superior value investment opportunities. What exactly did he mean? What changed? The Death of Security Analysis The first thing you should recognize is that Graham still favored buying common stocks as part of an investment portfolio. In his words, “[The] investment value and average market price [of common stocks] tend to increase irregularly but persistently over the decades, as their net worth builds up through the reinvestment of undistributed earnings–incidentally, with no clear-cut plus or minus response to inflation.” A decent assessment of stocks in general, and it’s easy to see why. Given that stocks provide, on average, a higher average return than pretty much any other asset class, Graham was well justified in his assessment. But while Graham liked the idea of buying stocks, he also revealed a decided shift on how he viewed the practical use of detailed analysis. In his words, “I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook “Graham and Dodd” was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I’m on the side of the “efficient market” school of thought now generally accepted by the professors.” It’s shocking that Graham could be seen on the side of the efficient market crowd, given that he based his career on the ability of individual investors to make above average returns using his value investing techniques. When it came to institutional investors in general, Graham described another devastating handicap. “…institutions have a relatively small field of common stocks to choose from–say 300 to 400 huge corporations–and they are constrained more or less to concentrate their research and decisions on this much over-analyzed group.” Give the ocean of analysts and mutual funds that are now choking the investment world, if Graham was right in 1976 when he made those remarks, things have only gotten worse. Yet, a number value investors have forged great track records since 1976, suggesting another path to great returns. Ben Graham’s New Path Forward Graham spent a lot of his investing life learning about securities and studying a wide range of investing strategies. It should be no surprise that Ben Graham’s shift towards believing in efficient markets still left open the possibility for great investment success. “…the typical investor has a great advantage over the large institutions. ………most individuals can choose at any time among some 3000 issues listed in the Standard & Poor’s Monthly Stock Guide. Following a wide variety of approaches and preferences, the individual investor should at all times be able to locate at least one per cent of the total list–say, 30 issues or more–that offer attractive buying opportunities” Professional investors often have to manage billions of dollars in a single fund, and most funds are well over $100 Million USD. Because of that, these managers only ever have a small pool of stocks to pick from. In comparison, individual investors can choose among far more investments, including the stocks of tiny companies that professional investors just can’t touch. This means that small private investors face much lower competition if they stick to small, mirco, and nano cap stocks. But how did Graham think a small investor should capitalize on this? “The individual investor should act consistently as an investor and not as a speculator. This means, in sum, that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase–in other words, that he has a margin of safety, in value terms, to protect his commitment.” Ben Graham clarifies, “[I recommend] a highly simplified [strategy] that applies a single criteria or perhaps two criteria to the price [of a stock] to assure that full value is present and that relies for its results on the performance of the portfolio as a whole–i.e., on the group results–rather than on the expectations for individual issues.” Benjamin Graham’s suggestion for a value strategy is exactly what many investors today call “quantitative value investment strategies,” or “mechanical” strategies. He continues, “The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase–say 50 to 100 per cent–and a maximum holding period for this objective to be realized–say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market.” Graham’s recommended buy and sell strategy is much simpler than the strategy he used to favor, thorough analysis in the hopes of uncovering unrecognized value. According to Ben Graham’s comments, investors can forget about industry and competitive analysis, or even income and balance sheet assessments, in favor of buying a diversified group of stocks based on simple metrics. Ben Graham did also have something to say about the sort of metrics that investors should be looking for. His favorite, in his words, “…[this] technique confines itself to the purchase of common stocks at less than their working-capital value, or net-current-asset value, giving no weight to the plant and other fixed assets, and deducting all liabilities in full from the current assets. We used this approach extensively in managing investment funds, and over a 30-odd year period we must have earned an average of some 20 per cent per year from this source.” Graham used to buy 100s of “working-capital value,” or net net, stocks to fill out his portfolio yet was able to earn returns in excess of 20% per year. That’s a great record, but as I’ve written to those who’ve requested free net net stock picks , by using the growing body of research covering net nets to focus on the best possible opportunities investors should be able to earn even better returns. That’s the approach that I’ve adopted, and it’s worked quite well. As Graham describes, “…we found it almost unfailingly dependable and satisfactory in 30-odd years of managing moderate-sized investment funds. ………I consider it a foolproof method of systematic investment–once again, not on the basis of individual results but in terms of the expectable group outcome.” What other endorsement do you need? Ben Graham’s Net Net Stock Problem There is a well known problem when it comes to buying net nets, however. They tend to dry up as markets advance. This has been a problem for people who insist on only investing in their own domestic market. Graham’s experience was no different. “For a while, however, after the mid-1950’s, this brand of buying opportunity became very scarce because of the pervasive bull market. But it has returned in quantity since the 1973-74 decline. In January 1976 we counted over 300 such issues in the Standard & Poor’s Stock Guide–about 10 per cent of the total.” I started Net Net Hunter to solve this very problem. By branching out to friendly international markets, investors can widen the pool of available investment candidates enormously. This is the same technique legendary Canadian value investor Peter Cundill employed during his career. But by looking internationally, investors don’t just find more net nets, they can also significantly improve the quality of the net nets in their portfolio. So while Ben Graham gave up on detailed security analysis at the end of his life, he by no means abandoned hope that small investors can beat the market by significant margins if they play their cards right. When it comes to your own portfolio, you have a tremendous advantage over the pros if you’re willing to look at tiny companies and buy a diverse group of ugly, beaten down, stocks such as Graham’s famous net nets. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Invest In The Next Boom

By Carl Delfeld “My interest is in the future because I am going to spend the rest of my life there.” – Charles Kettering One of the best economic thinkers out there right now is Robert Gordon, who gave a great speech about the American economy at a recent TED conference. Gordon spoke about America’s amazing run of economic growth from 1870 to 1970 with innovation being a big part of the story. Breakthroughs such as electricity, indoor plumbing, transportation (trains, cars, and aircraft), infrastructure, communications, and medical care – in addition to rising educational achievements and population growth – drove steady increases in American productivity, income, profits, and a rising middle class – the backbone of any healthy economy. Looking ahead, Gordon thinks that America’s economy will have a tougher time keeping the momentum. Why? Because instead of enjoying tailwinds, it now faces challenging headwinds such as poor demographics, weak education, crushing debt, and rising inequality. This is pretty consistent with the mood in the country right now, and forms the talking points of many of the candidates running for president – with the significant exception of Marco Rubio. But a new book by Alec Ross paints an altogether different picture of America’s future: The Industries of the Future. Ross paints an upbeat, lively picture highlighting many emerging industries, from cyber security and big data to financial technology, along with a huge, emerging trillion-dollar industry at the heart of life sciences – genomics. He sees huge opportunities for young people in this industry, as there’s a sizable skills gap with many good-paying jobs for those with only a technical degree. Broaden Your Horizon From an investment point of view, I think the current challenges China is facing – as well as the weak relative performance of emerging markets over the last several years – are blinding many to the real opportunity. In short, you need to move emerging markets from the fringes of your portfolio, to the very center of your investment strategy. And corporate America needs to put selling to emerging market consumers at the top of its growth agenda. Why not capture the growth of markets that offer significant tailwinds that supercharge growth and profits? Just think of it. About 70% of the world’s population is just beginning to enjoy the many innovations that propelled Americans’ growth from 1870 to 1970. And per capita incomes and production rates of emerging nations are at about 10% to 15% of Americans’. Many living in emerging markets still don’t have access to electricity, clean water, or indoor plumbing. The need for better infrastructure is enormous. Demand for better transportation, consumer goods, technology, education, medical care, and luxury goods, is booming along with the means to pay for them. This “catch up” of past innovations plus the ready adoption of new technologies is fuel for much higher growth and investment returns. You need to capture this growth – or risk falling behind. The Right Strategy Is Crucial To capture most of these big gains, and avoid these downturns, you need the right strategy. This means a disciplined, opportunistic, active, and value-based approach. What is the common denominator of all great value investors? At all costs, they avoid buying into emerging market companies after they have made a nice run, have become too expensive, and are vulnerable for a pullback. With emerging and frontier markets cheap and out of favor, this is the time to take action. Finally, if you want to really supercharge your wealth, you must look far beyond the usual suspects of Brazil, Russia, India, and China (BRIC). With the possible exception of India, they have significant flaws. There are much better opportunities in many other countries – some offer us better opportunities than the China of 20 or 30 years ago. These markets are also completely off the radar screen of Wall Street analysts and the financial pundits. Investments and capital are headed to these markets, and it’s starting to show up in the performance numbers. By shifting your emerging market strategy away from “buy and hold,” and the BRIC countries , to an active value approach targeting other emerging markets, you’ll put the probabilities of success in your favor. Original Post