Investing in Conservative Internationalism

Written By Brian Hicks

Posted September 9, 2014

Let’s face it: The world is a beautiful mess right now.

The areas of conflict seem endless: Iraq, Syria, Libya, Gaza, Ukraine, and the South China Sea are but a few of the hot spots.

So foreign policy pundits are having a field day arguing back and forth about when and how America should intervene.

On one extreme are some neoconservatives who appear to want to aggressively jump into every fray. At the other end are those who instinctively recoil from taking any action at all.

In a recent column, George Will surmises that Americans should be ready for a middle course between a foreign policy of flaccidity (President Obama) and grandiosity (George W. Bush).

This balanced approach is consistent with what George Washington University’s Henry R. Nau calls, in a great and timely book with the same title, “conservative internationalism.”

It would include a mix of spreading freedom — but doing so “primarily on the borders of existing freedom, not everywhere in the world at once” — and the use of “armed diplomacy” against adversaries outside of negotiations.

The result would be an approach that preserves national sovereignty.

Nau explores “conservative internationalism” in the foreign policies of Thomas Jefferson, James Polk, Harry Truman, and Ronald Reagan. I would add George H.W. Bush (Bush 41) to the list.

These presidents did more than any others to expand the arc of freedom using a skillful blend of force, diplomacy, and compromise. Timing is important, since lesser force early on to influence negotiations is smarter than greater force after negotiations fail.

This common sense “there is no virtue in the extremes” approach can be applied to many aspects of life — including global investing.

International Stocks

Investors oftentimes are at the extremes of buying international stocks after they have made a major move and are ripe for a sharp pullback and avoiding international stocks when they are out of favor, cheap, and poised for a rebound.

Here are four principles for executing a global conservative investment strategy that will help build and protect your portfolio…

1. Diversify with a global perspective

It is always riskier to have your eggs in one basket, whether it is one stock, one fund, or one country. Diversify across countries, assets, and currencies.

Look beyond stocks, and consider adding commodities, timber, frontier markets, and even rare strategic metals (I’ve discovered an easy way to do this) to your portfolio.

2. Invest with a bent towards value

Value investing offers you lower downside risk and greater upside if you can demonstrate a little patience.

If you select high-quality stocks at the right time, you’ll be just like investment legends Sir John Templeton, J. Paul Getty, and Warren Buffett.

3. Use a core-and-explore strategy

When I was an investment advisor, I always insisted that clients divide their assets into two portfolios. In the first “core portfolio” went the capital they primarily want to protect. In the second bucket was the “explore portfolio,” where aggressive growth was the goal.

Getting a solid, conservatively balanced core portfolio in place first allowed us to go after great opportunities in the explore portfolio.

4. Be comfortable with lots of cash

Most gurus advise against any market timing at all and recommend always staying fully invested. Big mistake. You should always try to keep ample cash positions so you can take advantage of sharp sell-offs in markets.

Use these four principles to build a global conservative portfolio that will be the envy of your friends and colleagues.

Until next time,

Carl Delfeld for Wealth Daily

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