Warren Buffett, Charlie Munger, John Templeton and all the other great investors spend(t) a great deal of time trying to understand the social, economic and political dynamics of countries around the world. These must be considered by investors when estimating future earnings and the risk attached to those earnings – bargains cannot be identified without this.
All have observed first-hand throughout their lifetimes the power of allowing free-enterprise to release the entrepreneurial spirit and witnessed the stifling effect of extreme socialism and other forms of authoritarianism.
This can lead to nationalisation (or even confiscation) from which the investor is unlikely to receive fair value. Controlled economies may also impose price controls and other distortions in the economy that dissuade entrepreneurs from creating wealth.
See the roots of historical shifts
Warren Buffett is a keen student of American entrepreneurial history and is forever quoting statistics on the phenomenal growth of living standards flowing from free enterprise combined with the need to support the less fortunate.
John Templeton looked for governments that set their economies on path toward capitalism and free markets. After graduating from Oxford in 1936 he visited India and Hong Kong. Both were very poor, with people dying on the streets.
When he returned years later, he noticed a dramatic change in Hong, but not in Calcutta; a change he attributed to the difference between enterprise and socialism. The government in India had a tendency to regulate everything so there was little progress; whereas in Hong Kong the government kept its distance, allowing businesses wide latitude.
The result was that the standard of living multiplied ten-fold over fort………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
Prof. Glen Arnold
I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.
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