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Finance Avoid the “too hard” pile The world’s greatest investor −Warren Buffett − has a name for investments that are too complicated, too convoluted, or too uncertain to evaluate with any degree of confidence: the “too hard pile.”The phrase was coined by Buffett’s partner Charlie Munger to describe companies that may very well make good investments, but fall outside of Buffett’s or Munger’s circle of competence. Because these investments take far too much time and effort to truly figure out, they’re passed over in favour of simpler, more certain ideas. You can think of certain countries (or market regions) much the same way. Unfortunately, some places in the world have long histories of political strife and instability. Given enough time and knowledge, you might very well be able to understand the opportunities that might remain hidden to many other investors. But if you don’t, it’s probably not worth the effort. Put them in the “too hard pile” and focus instead on opportunities that are easier to identify, easier to invest in and make it easier to sleep at night. Don’t get us wrong: putting a country in the “too hard pile” isn’t to say that you can’t make money there. But such opportunities require a significant investment of time and effort before you can invest your money. Many snowbirds simply have better things to do in life. Keep an eye out for opportunities There’s a famous saying in the investment world: the best time to invest is when there’s “blood in the streets.”This quotation is generally attributed to Baron Nathan Rothschild, a British financier who made a tremendous fortune by putting his money to work following the NapoleonicWars. While the Baron was speaking literally, the general idea is well-suited to a whole range of political risks. Often, the best time to put money to work is when political risk seems extreme and everyone else wants to sell. So, while you’re watching the nightly news and fretting about how geopolitical risks will impact your investment portfolio, keep the Baron’s words of wisdom in mind, and do what the “smart money” is almost certainly doing: taking a long, hard look at the opportunities that arise from political risk, and plotting their next money-making move. Invest in big, multinational companies One of the best ways to manage political risk is to let large, multinational corporations do your international investing for you. Such companies do business around the world, and are globally known for their strong brands − think Coca-Cola, Nike, Johnson & Johnson, HSBC Bank and similar names. Such investments are the foundation of any well-constructed snowbird portfolio: they’re stable, well-established businesses with strong franchises and solid balance sheets. Most of them have long track records of paying dividends to shareholders as well − exactly what the doctor ordered for most snowbirds. Such companies also offer a degree of protection against political risk. Not only do they offer a level of “built-in” diversification (their business is literally spread across multiple jurisdictions in multiple parts of the world), they tend to be very adept at navigating the business difficulties and challenges that arise from political change. Most of them have been doing so for many, many years. Are such companies “immune” to political risk? Well, no. Their lines of business can (and do) get caught up in the political changes in various countries around the world. But because they do business in so many places, such risks don’t typically have a catastrophic effect on the business, even if they have to write off the entirety of their investments in a given country (as many will likely do with their Russian operations). If you’re particularly concerned with political risk, it can be a good strategy to limit the international component of your portfolio to only these kinds of “best of the best” types of companies, and leave direct investment to others. A final word on political risk Troubled by political changes in a given region of the world? Worried about how your investment in company XYZ will be affected by proposed tax changes? Unsure about how long civil unrest will last in a given corner of the world, and what that might mean for your portfolio? If you find yourself losing sleep about such questions, perhaps the best thing to do is reduce your exposure to such investments, or exit them altogether. Will your portfolio “suffer” if you fail to include such international investments in your portfolio? Well, maybe. Or maybe not. Most experts agree that adding international diversification to a portfolio focused mostly in Canada and the U.S. is a good thing, in terms of both reducing risk and boosting your returns. But it’s hard to be certain just how muchof a difference it will make. One thing of which you can be sure, however: worrying about your portfolio comes at a price. Life is simply too short to sit up at night worried about an investment that you made on the other side of the world. Your ability to get on with your life and have peace of mind when it comes to your portfolio is very likely worth a whole lot more than an extra point or two of performance on your annual investment statement. CSANews | SPRING 2022 | 33

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