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Diary of a Hedgehog: Biggs' Final Words on the Markets by Barton Biggs

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Shake Well Before Using

I have long been an aficionado of the emerging markets. It may be presumptuous to say, but I was present when they were created as a true asset class.

I still believe but as the chart on the next page shows, emerging markets since 1988 have vaulted over eightfold while the S&P 500 has risen a little over five. Adjusted for risk, volatility, and liquidity, the returns are about equal. Am I just chasing my own tail?

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January 17, 2011

I believe the most influential, nay crucial, nay magnificent, asset allocation decision for the true long-term investor is the percentage of his or her total equity portfolio allocated to emerging market (EM) equities. By long-term investor, I mean the individual who is thinking about wealth enhancement over a span of two to five years, and the professional who is willing to make a commitment that exposes him or her to considerable benchmark risk. Such a bet could be a make-or-break position, but it’s one I have a high degree of confidence in. I despise running money to minimize benchmark risk. We should not be slaves to the usual equity benchmarks, but neither should we be oblivious to them, so my comments take them into respectful consideration.

Let me present some facts. The EM economies this year will be 37% of the global economy and will account for 75% of the world’s growth. Goldman Sachs (GS) and the World Bank estimate they ...

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