VIDEOS <http://www.hardassetsinvestor.com/videos.html> Video: Dorsey Says Silicon Valley At War With Wall Street Written by Hard Assets Investor | January 30, 2013 Video: Dorsey Says Silicon Valley At War With Wall Street <http://www.hardassetsinvestor.com/videos/4463-video-dorsey-says-silicon\ -valley-at-war-with-wall-street.html> <http://www.hardassetsinvestor.com/videoSourceJoomlaMov.php?id=4463> Tom Dorsey, co-founder of Dorsey Wright & Associates, shares his current outlook on the emerging markets and other topics of interest.
Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today my guest is Tom Dorsey, co-founder of Dorsey Wright & Associates. Tom, it's great to have you here. It's been a long time. Tom Dorsey, co-founder, Dorsey Wright & Associates (Dorsey): It has been a long time. It's like old home day here today. Last time I saw you, we were webcasting you down in my company. Norman: Oh, you were ahead of your time, because that's where everything is happening now. I'm glad to have you here, because I want to focus on two things. I know that you have been very active and following emerging markets lately. I want to get your take on that. But I also want to talk about new developing investment trends, the input of technology now, how technology is changing the entire investment landscape. But first let's talk a little bit about your outlook for emerging markets. What are you focusing on? Dorsey: Well, as far as emerging markets, Mike, if you think in terms of the old S curve, and you look at GDP of S curveswhich we have had done for us by Theodore Modis, who is a physicist that works with my companywe look at the S curves around the world. And you see the developed markets, like the U.S.we've used up almost 70 percent of our S curve. And we're reaching maturation. So I wouldn't expect much out of the United States, although there would be good places to trade and invest. However, the emerging markets, if you take the Far East, and you say, "Where is China on its S curve?" It's about 6.5 percent. Where is India? 4.5 percent. I'm talking beginning. They haven't even reached acceleration yet. When you look at Singapore, probably 19 percent. Indonesia, 22 percent. Malaysia, 18 percent. This is where your opportunity is long term. Now, the same thing with Vietnam. Vietnam is in the same area. However, that's why you have to use the charts or find some way to be able to manage the portfolio on a shorter-term basis, because Vietnam, although it has plenty of upside potential over the years, has done nothing since 2007. That's why it's imperative that you have a methodology, that you look at them and say, "Yes, now is the time to buy, or now is not the time to buy." We use relative strength comparisons. If you look at Latin America, same thing. You could buy Peru today. One of the best countries that you could have owned is Mexico. And I'll tell you a story. I was at a wedding here recently, and I was talking to a gentleman who's a self-made millionaire from Guadalajara, Mexico. And I said, "Mexico is the best place you could have invested over the last few years. And I would invest in Mexico right now." He said, "No way I would invest there. Too much trouble going on there." I said, "Well, whenever you feel it's comfortable to invest in Mexico, let me know, because I'm coming out." But it's one of the best places that you could have been. Right, today: Thailand, Turkey, Mexico Norman: So you would prefer to go directly to these international markets as opposed to, let's say, stay invested in the United States, but focus on large multinational companies like GE or McDonald's or that sort of thing. You prefer to really go after the individual countries, perhaps through the use of an ETF? Is that what you're saying? Dorsey: Absolutely, Mike. Because back in the day, when I was a stockbroker back in the '70s, a person asked me, "What about international investing?" I would have said, "Invest in Exxon, because they're all over the world. McDonald's, all over the world." That's changed totally now. That's not where you want to be. You want to be investing in these countries. I just came back from Indonesia and Singapore. And it was a week before this last presidential election. And I was waiting for people to ask me what I thought about Obama, and what was going to happen in the election. Not one person came up to me, at my venues where I was speaking, and asked me about the election, not one person. They're more interested in what's going on there. And that's the thing. People need to get out and go visit places. In Indonesia, you go to the malls, people are buying durables. The middle class is boiling up. Fifty percent of the population in Indonesia is 25 or below. Norman: But it's very hard for anyone to stock-pick individual stocks. And you'd probably even recommend against it. Dorsey: Yes. Norman: What you're saying is go towards the ETFs of these countries. Dorsey: Buy the whole school of fish. In other words, why try to pick one fish, especially when you don't even know the name of it? I know I want to own Indonesia. Malaysia is the lowest-volatility country in the world. And I'll bet you, Mike, when you're home washing the dishes tonight, you probably have rubber gloves on. Norman: Well, I use a dishwasher, actually. Dorsey: Oh. Well, if you used rubber gloves, Mike Norman: It is the 21st century. Dorsey: Malaysia's the biggest producer; Top Glove is the biggest producer of rubber gloves in the world. Norman: Well, next time I happen to be wearing rubber gloves, I'm going to remember that little factoid. I want to talk about how technology is changing the investment landscape. Obviously, we're sitting here at the New York Stock Exchange, which, if you think about it, it's one gigantic server. You and I know it from the old days, with guys running around on the floor and screaming and shouting. That's not happening. But for the individual investor, how is technology opening up a whole new landscape for them? Dorsey: Oh boy. What you got to do is sit back and just let your mind wander into the future. Look at what's happening right now. Wall Street doesn't realize this. Silicon Valley is at a major war with Wall Street. It's like the Lilliputians. It's early in the game for them, in other words. They have just started these companies and do what the brokers do. Most brokers on Wall Street use modern portfolio theory, which has been so discredited over the last 12 years. While these technology companiesthat's all they knowbut they have been able to produce the best technology you can imagine, that does what the broker does for 200 basis points, for 25 basis points, online. Dorsey (cont'd.): I went to one of them. I logged on. I gave them my passwords to my bank and everything. They're totally secure. Within 45 seconds, all four portfolios at Schwab were downloaded onto that system. Another 45 seconds later, they had recommendations for me of what I should be doing, all technology-based. That's where it's going right now. Think back to '75, Mike. Remember when Charles Schwab came online? Charles Schwab was the first discounter. When I was a broker at Merrill Lynch, Pierce, Fenner and Smith back then, we looked at Charles Schwab and said, "No way a discounter. Are you kidding me? Look at me. I've got a three-piece suit on. I'm a stockbroker." And what happened? Wall Street went bankrupt. Charles Schwab was standing strong. What's happening right now is these small companieslike Sigfig.com, Wealthfront.com, Smart401k.com, MarketRiders.com, Covester.comall of them out there are providing turnkey jobs. And Wall Street is going to have to look at this. The technology is on their hands. Norman: So you're saying it automates the whole process of portfolio management? Dorsey: That's right. Norman: Brings it to the individual. Lowers cost. Opens up new opportunities. And clarifies what used to be a very hard-to-understand process for people. Dorsey: And delivers it to the cell phone. Norman: Right to the cell phone, the smartphone. Or an iPad. Dorsey: It's all going mobile. So, if you think five years out or 10 years out, I'm telling you right now, if you were to deal with my children, let's say, and I was a client of yours, OK, I'm one of the Baby Boomers. I'm at that age, now. I've got a couple pennies to put together. If you deal with my children, different story. You're not going to call them up and talk to them. You better be able to text. And you better be up on technology, because that's the only way you're going to get to that kind of money right now. So brokers need to start making relationships with their clients' children. But technology is on its way. And this is not unlike what happened with Charles Schwab. Norman: But for a lot of people, it's daunting. Some people are not very adept at using their smartphones. How do they get around that technology barrier that they might have, in using that information? Dorsey: Well think about where we are today, Mike. You've got a smartphone. Think about what we grew up with, with the dial phones. We've all gotten used to it. Look at here. I've got my iPad with me. I don't go anywhere without it. I've got an iPad mini. I'm technologically advanced. I'm 65. I'm in the Medicare club. There's a lot of us like this out there. But the next group of people who are going to carry the ball, they're technologically savvy. All my kids are. They're the ones that are going to inherit the money. So you better be technologically savvy to deal with them. Norman: OK. So getting back, now, to strategy. You're saying, and you're telling investors, "Continue to focus on emerging markets." What percentage of their portfolio do you think should be put into that category? Dorsey: That's a good question. I'm going to be honest with you, Mike. And I know this is going to be sacrilegious, because most firms would say, "Only put 15 percent in; that's where the risk is." I don't think that's where the risky business is. I think the risky business is in the developed world. And I would probably put at least 50 percent in the emerging market. And for myself, even more than that. I have more faith in Singapore. I have more faith in Indonesia and Jakarta. I have had accounts in Jakarta, at e-samuel.com for 12 years. I've watched that company build up and become one of the top online brokers in the world. So these countries are not going to go backwards, they're going to get better and better and better. And that's where the growth is. Norman: Now let me ask you, finally, what do you think about something like gold as an investment? Dorsey: The last time I really understood gold was when the Bunker Hunt guys were trying to corner the silver. And if you had a barber shop that was called Gold's Barber Shop, and it was listed, it went straight up. That's when I understood gold. Now I don't really have too much of a comment on that. I would look at it on the chart. If I look at the chart, which I did before I came here, I don't think there's any upside potential. If I was a gold buyer, I would buy gold and sell calls. Norman: All right. So the "gold" is in the emerging markets. Right? Dorsey: Absolutely. Norman: OK. Tom Dorsey, thank you very much. That's it for now, folks. This is Mike Norman, saying, see you next time. Bye-bye.
