Starting up a new fund company is hard work. I felt it was time for a little R&R, so I recently headed south to the Mayan Riviera to recharge the batteries. After 3 or 4 days of lounging on the beach, swimming in the Caribbean Sea, and consuming the odd Corona, my body and mind were officially relaxed. So I began to think about, what else, investing.

With the sun shining bright and the ocean gently breaking on the shore, it was a perfect time to stretch out in the hammock and dig into the reading I brought along for the trip. But The Essays of Warren Buffett just weren’t doing it for me in this tropical paradise, so I cracked open Freakonomics, a bestseller written by a “rogue economist” out of the University of Chicago. The author, Steven Levitt, asks questions uncharacteristic of the traditional field of economics, such as ‘What do school teachers and sumo wrestlers have in common?’ and ‘Why do drug dealers still live with their moms?’ It’s an interesting read, to say the least. Levitt looks for correlations between seemingly unrelated events and occurrences to draw conclusions that seem startling, yet totally plausible at the same time.

As a side note, having worked in this industry for a number of years, I’ve developed a quirky tendency to look at the ‘investment side’ of everything (my girlfriend would replace quirky with annoying). For example: my morning bagel – I wonder how Tim Hortons stock is doing? Turning on my computer in the morning – Is Dell releasing earnings this week? You get the picture.

After reading a few chapters, my stomach started to rumble, so I went to grab my suitcase to find the Pepto Bismol that I’d brought along (anyone who has been to Mexico knows that when your stomach starts to rumble, it’s best to deal with it right away). I emptied the contents of my shaving kit onto the counter and found the magic pink liquid. I also had Tums, Gravol, Imodium and Alka Seltzer, among all my other toiletries. Pretty well diversified, I thought to myself.

Let’s look at the contents of my shaving kit from an investment perspective.

  • Pepto Bismol (Procter & Gamble - U.S.)
  • Imodium (Johnson & Johnson - U.K.)
  • Tums (GlaxoSmithKline - U.K.)
  • Alka Seltzer (Bayer - Germany)
  • Aspirin (Bayer - Germany)
  • Sonicare toothbrush (Philips - Netherlands)
  • Crest toothpaste (Procter & Gamble - U.S.)
  • Axe deodorant & shower gel (Unilever - Netherlands)
  • Q-Tips (Unilever - Netherlands)
  • Cologne (Armani - Italy)
  • Shaving cream & razor (Gillette - U.S)

Products from the U.S., the U.K. and Germany helped me feel good, while those from Italy and the Netherlands helped me look and smell good (according to my girlfriend, at least). Too much exposure to one ‘country’ or too little of another, and I could’ve been in trouble. Without remedies from the U.S. and Germany, I would’ve been in a world of hurt. You make the connection.

The rest of the contents of my suitcase rounded out my geographic diversification, and helped contribute to the success of my vacation. For instance, my camera (Nikon - Japan) represented my exposure to Asia, while my cell phone (Samsung – Korea) and flip-flops (Reef – Brazil) provided me with some emerging market exposure, not to mention contact with the outside world and comfortable footwear.

Reading Levitt’s book, in combination with the intense sun and cold Coronas, prompted a question and correlation that Levitt might appreciate. What do the contents of a suitcase and investment portfolios have in common? Geographic diversification plays a key role in their effectiveness, or success. I’m willing to bet that no economist has studied that correlation before.

You may have noticed that I had no domestic exposure in my suitcase. I made up for this, however, by renting a SeaDoo (Bombardier – Canada) for the day, and enjoying the odd rye and coke (Canadian Club – Canada). My domestic exposure enhanced my short-term vacation returns, but could’ve been disastrous if I had too much of it. I wonder if there’s a lesson here...