Tie Yourself to the Mast!

 | Jan 24, 2014 | 3:20 PM EST
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Do yourself a favor and stay out of the blast zone, will you?

Today I have heard many people talk about how they are picking among the rubble of the emerging markets for terrific opportunities. They see the big declines and they want in.

Do not listen to these sirens. Do not fall prey to their pristine logic. Believe me when I say they have never been on the battlefield. They have never been in the fog of the emerging-markets wars.

I have and I barely lived to tell about.

A little more than two decades ago, I got the emerging-markets bug. I had noticed how Turkey was becoming an international juggernaut, with a growing middle class and a rapidly expanding economy.

I wanted in.

So I did a ton of research and I recognized that if Turkish growth continued, millions of people would be leaving poverty behind and advancing to middle class status. What do members of an emerging middle class do? They buy houses, right?

So I went and bought millions of dollars of shares in Yapi Kredi, known as the Bank of America (BAC) of Turkey, and in Arcelik, the Whirlpool (WHR) of Turkey and a huge appliance conglomerate.

What I didn't realize when I was making these acquisitions was that the inflation rate of Turkey was beginning to get out of control and more hot money was flowing out of Turkey than into it. All I knew was that the companies were putting up very big numbers and that Turkey was marching, inexorably, toward a boom of epic proportions.

Sure enough, both Arcelik and Yapi Kredi delivered fabulous earnings and their stocks held in fabulously, even as I kept hearing that Turkey was doing badly. Every day my trading run showed that the stock prices were either the same or higher.

What I didn't realize was that the trading run didn't adjust for the currency, and the Turkish lira was falling apart. Next thing I knew, without the stocks doing anything at all, I had lost half of the money I had put into them because of the collapse of the currency. I had been losing money hand over fist the whole time and I didn't even know it. That's the type of thing that happens when you play with the fire of emerging markets.

I am sure that there are classic opportunities in Turkey or Argentina or South Africa at this very minute. I am sure that there are competent financial advisers who are saying that this is the time to pull the trigger, when everyone else is panicking.

Here's my advice: Don't buy into their panic; buy into ours. Our stocks are feeling a lot of the pain of emerging markets today, but the companies underneath that pain aren't feeling it at all. That's the opposite of the emerging markets, where the pain of the stocks is being shared with the pain of the companies groaning underneath them. Don't seek their pain; there's more than enough here to go around.

Oh, and guess what? I'm reading about people investing in the very Turkish companies that took me down more than two decades ago. The people who are talking about buying them? They look like they may have been in diapers when I bought these companies.

Believe me, if they keep this up, they'll be needing those diapers again real soon.

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