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Which is more predictable over the next three years:  the future of a particular company or the future of a particular country? The question matters because an investor can buy a basket of stocks - called an ETF - from a particular country in the same way one would buy stock in just one company. Ideally, you want to invest where there is the most predictability.

I believe countries are more predictable than individual companies. For that reason, I think investing in ETFs by country makes more sense than buying individual stocks. Allow me to explain.

A company is subject to its own risks plus the risks of the world. If the entire global economy crashes, so goes the individual company. But an ETF carries only the global risk plus the risk that the government will make an unexpected dumb move. I would argue that governments make important moves far less often than companies, and unlike companies, most modern governments signal their moves well in advance. Compare that to Apple who may or may not introduce a TV product in the next year. Companies have the right to secrecy. Governments do a poor job of keeping secrets. Government predictability comes from the fact that they move slowly and they have an obligation to transparency.

In a company, the CEO and the CFO can fudge numbers and keep it a secret. A modern democratic government would have a hard time fudging national employment numbers or anything else of that magnitude. So while government has as many or more liars as private industry, a democratic government is less likely to get away with fudging a major economic statistic.

If you made a list of the nations with the most effective governments, you'd see they also have the best economies.  There are exceptions, of course, but overall, effective governments create good economies. The correlation between management skill and company profits is less direct. It doesn't matter how good a CEO you are if your competition invents a killer product or your supplier can't deliver enough components.

If you ask me to predict ten years out, I'd say with some confidence that countries such as Denmark, Sweden, and Switzerland will be doing just fine. But a company as strong as RIM can be eviscerated by strong competitors in just a few years. And a company such as Enron might be nothing but a fraud. In five or ten years, Denmark will still be Denmark.

Full disclosure: I have investments in ETFs for both Israel and Turkey. Those countries have plenty of regional drama, but both countries are governed effectively. In the long run, I expect both countries to do well unless the entire world goes into the crapper.

So I put the question to you: Which is more predictable over a three year horizon, a company or a country?

 
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+1 Rank Up Rank Down
Dec 7, 2012
Not sure how easy, but if the corporate CEO and/or CFO cook the books, they will likely get caught (hard to hide from auditors) and they will likely go to jail. There is also some understanding of corporate financial statements.

On the other hand, there are no repercussions for falsifying (or "spinning") government numbers (they usually get reelected), and virtually no one understands the vague !$%*!$%*!$ and numbers that support the government "spin." Investing in any country is really risky (I'm not an investment advisor--just a skeptic), but investing in middle east and/or european countries is crazy!

There are few countries now that won't (at some point in the next few or several years) collapse under the weight of their enormous social spending.
 
 
Dec 7, 2012
Many countries also have going for them: a central bank which handles nation-wide monetary policy, debt largely denominated in their own currency.
 
 
Dec 7, 2012
Comparing RIM to Denmark and Sweden is not meaningful. Denmark and Sweden are blue chip, established countries, and thus most good news is likely "priced in" or expected, so you will get modest returns. Those countries would be analogous to stocks in utility companies.

Tech stocks would be more analogous to emerging market countries - you could have wild swings in either direction. RIM would be roughly equivalent to Egypt right now. Egypt's old "business model" has been severely disrupted, and they have announced a new approach, but the odds of it succeeding are kinda low.
 
 
+8 Rank Up Rank Down
Dec 7, 2012
[A modern democratic government would have a hard time fudging national employment numbers or anything else of that magnitude.]

hahahahaha... Scott, you kill me. :^D

The difference between a company and a country with respect to fudging numbers is that the most a company can do it say that two plus two equals four, but lie to you and say that they only sold two plus one. A country, on the other hand, can tell everyone that two plus two equals seven, and go about telling you that you're getting seven when you're really getting four.

They're doing it currently with our unemployment numbers, our outstanding public debt, and our GDP.

WATYF
 
 
Dec 7, 2012
The past few years have shown us how unpredictable countries can be, and not just badly run countries like Greece. If you had asked me six years ago how well run Ireland, Iceland and Spain looked I would have said they all looked to be run well enough and that Iceland looked to be somewhere between us and Switzerland.

Do you really think its easier for a company to fudge its numbers than a country? Yes there have been some spectacular examples of companies doing that but there are also more companies so you should hear about them cooking the books more often. As for democratic systems protecting us from such things companies are democratic in the sense that the investors have the vote.
 
 
 
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