Risk: Diversification and Risk are Opposites
We cannot choose risk...we must diversify it. A primary feature of frontier market is that they are extremely diversified, both among one another and relative to the other risks we face. Each investment made in the frontier is unique, naturally creating diversity in our portfolio.
Frontier countries are not risk free. They have volatile political and economic systems; corruption often overwhelms rule of law; their health care environments are primitive; their financial markets are still developing in terms of transparency and liquidity. Yet when we read the news of political and corporate scandals in our own country, we realize that no country is perfect.
Human nature is much the same everywhere, and all countries share the problems of frontier markets to some degree. What is important is the trend in these risks. Surveys of economic freedom, such as those by the Heritage Foundation and the Frazer Institute, show that frontier countries in general are moving in the correct direction. For some, it may be two steps forward and one step back, but still the trend is favorable. A sage once said: “The years know more than the minutes.” To see this, we must step back from the day-to-day current events and take a perspective that reveals the long-term opportunities.