Real Talk With Rabih: BRICS, the Dollar, and Your Investments – Episode #385

Until recently BRICS was made up of Brazil, Russia, India, China, and South Africa. Now that other nations are applying for membership in the alliance, what does that mean for U.S. global power, the dollar, and your investments? On this episode of the Dentist Money™ Show, Ryan asks Rabih Dimachki, head of our investment strategies, to talk about what investors should know about BRICS.

 

 

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Podcast Transcript

Ryan Isaac:
Hello, hello and welcome to another episode of The Dentist Money Show, brought to you by Dentist Advisors, a no commission fiduciary comprehensive financial advisor just for dentists. Check us out at dentistadvisors.com. Today on the show, I have a fan favorite, team favorite Rabih. And Rabih and I are talking about some questions we’ve been getting lately on the BRIC countries, B-R-I-C. Emerging markets in the BRIC countries, and some of the news that’s happening about currencies and dynamic power shifts and economies, stock markets. Usually, when there’s news which is basically every few weeks, there’s something new in the news and we get questions and people just want to know, “Does this mean I have to do anything different?” And we cover that. There is a possibility that there’s something different you should be doing specifically in your public stock market investing because of news like this.

Ryan Isaac:
So it was great to have Rabih who knows so much more than I do on the show to talk about this. We talked about what’s a reserve currency? What could happen to global leadership changes? Should I be worried? Can I control this? How does this affect my portfolio? So these were some great questions along something, the history of BRIC countries and what’s in the news right now with Rabih. So thanks to Rabih as always, we love having him. And thanks to all of you for being here.

Ryan Isaac:
If you have any questions, we love answering your money questions. Go to dentistadvisors.com, click the book free consultation link, we’d love to have a chat with you. Thanks for being here and enjoy the show.

Jess Reynolds:
Hey there, it’s Jess with dentist advisors. Did you know we’ve recently launched a new service called the Dentist Money Membership. It’s an affordable way to support your personal financial strategy with cutting edge technology and guidance from dental-focused CFP advisors. The Dentist Money Membership includes the Elements Financial Monitoring app, an annual financial check-up, CE courses, an automated investment platform. And more. To learn more about The Dentist Money Membership and to get started, go visit dentistadvisors.com/money.

Announcer:
Consultant Advisor, conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by dentist advisors or registered investment advisor. This is Dentist Money. Now here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show, where we help dentists make smart financial decisions. I’m your host, Ryan Isaac and I’m here with fan favorite, team favorite, human favorite, Rabih. What’s happening Rabih?

Rabih Dimachki:
Hey Ryan, how’s it going?

Ryan Isaac:
Yeah, thanks for being here, man. I’m loving you on the show.

Rabih Dimachki:
Pleasure.

Ryan Isaac:
Okay, lately, we’ve been getting some questions and it feels like the news is starting to pick up a little bit on this. As I’m saying this my… What you’re seeing, my mind is like reeling, because I’m always thinking, we’re always getting questions about something that’s going on in the news or someone’s already always sending us something like, “What does this mean? Or why are my friends talking about this?” Lately, as if there’s not enough already going on. And we’re recording this… When is this, end of March 2023?

Rabih Dimachki:
Yep. Still snowing in Salt Lake?

[laughter]

Ryan Isaac:
Oh my gosh man. I swerved today. It wasn’t good, but it wasn’t snow. I’ve been getting questions, multiple advisors about BRICS. And we’re not talking about Legos and we’re not talking about Minecraft. Although my kids would like that, they would prefer that.

Rabih Dimachki:
Yeah. The podcast would be much better if we’re talking about Legos.

[laughter]

Ryan Isaac:
It would get more clicks if this was Minecraft. BRICS, B-R-I-C-S, the BRIC countries. And the questions have been like this… I could pull them up. But they’ve been like, “What’s this BRIC news I’m seeing and should we do anything about it?” Or, “What’s happening to the US currency and should we be worried?” Questions along that nature. I would swear, you could just fill in the blank dot dot dot. Should we be worried? Fill in the blank… Should we… Are we gonna change anything? Fill in the blank. Or what’s our new strategy now, from six weeks ago. There is just always something, I’m not judging, and I’m just saying, “Man, there is always something that makes people wonder, woah, is the world different now? Do we need to behave differently and do we need to invest differently or think differently? So anyway, let’s just start with, Rabih, what is a BRIC country? Just first of all, without even commenting on what the news is right now, what are BRICS refered to?

Rabih Dimachki:
BRICS is a term coined by Goldman Sachs in the early 2000s. And it mentions five main countries. They are Brazil, Russia, India, China and South Africa. And it was based on their economic analysis that for the next decade or this century, those countries are gonna have a consistent long-term economic growth and expansion, and this is where everyone should be investing. Pre-2008, the BRICS were a huge topic, everyone’s talking about, especially during that lost decade period for the US stock market when people are searching for returns outside the US, yeah.

Ryan Isaac:
It’s where they found them?

Rabih Dimachki:
BRICS where the old FANG, you know? FANG stocks, BRICS stocks. And…

Ryan Isaac:
Where you have to… What you just said, FANG, not everyone’s gonna know what FANG means.

Rabih Dimachki:
FANG is the 2010-2020 bull market, and especially led by technology companies, we’re talking Facebook, Apple, Alphabet/Google, Amazon, Netflix, right?

Ryan Isaac:
Wait, are they called FANG also because not only the acronym, but they bite you and suck your blood out of your life?

Rabih Dimachki:
I don’t know whether they call them that way, but that’s some really good surrealism, like… [laughter]

Ryan Isaac:
That’s the first thing I thought about.

Rabih Dimachki:
Yeah.

Ryan Isaac:
Okay, so BRICS, a coined term, is that… If someone says, “Hey, is that synonymous with emerging markets?” Would that be a fair assessment or is that like… Is BRIC more… It’s four, five countries where emerging markets is more than four or five countries? What’s the difference?

Rabih Dimachki:
Yeah, definitely. Yeah, they are just a small sliver of them, you’ve got places like down Southeast Asia, right? Thailand, Singapore, Vietnam, even in Africa, we’re talking about countries like Egypt or Nigeria or Congo, we’re talking about, I don’t know, maybe Turkey, all of those are considered emerging markets, they’ve got developed Capital Markets, stock markets in those countries, but they weren’t under the BRICS terminology and for whatever analyst reason there was when they coined the term, but what’s interesting is that… And why this topic is very heavy and greasy it’s because this moved away from just being a catchy slang for stocks or country you should invest in, to more of, oh, now there’s a political identity globally, where countries are saying, “Oh, we are on the BRICS front, we are a new emerging world power,” and now, not only you’ve got the stock market reporter reporting about it and searching for Clickbaits, you’ve got traditional media and news outlets talking about it, which…

Ryan Isaac:
So you’re saying just like everything in the world, it became polarized, it became an identity for someone to become polarized around?

Rabih Dimachki:
Yeah, definitely, like China is there, and we know the competitive race for global economic strength between the US and China, two largest… The two largest economies in the world, and with being the strongest comes sparks of soft power, diplomatic power. And the conversation goes in many directions at that point, it can go to the better of like, “Global cooperation and the world is gonna get better and competition for all,” and it can go to, “Oh, they’re gonna be fighting, currencies are gonna crash and there might be wars.” Right?

Ryan Isaac:
Yeah.

Rabih Dimachki:
And go both ways. Which is why people are following the news, but going back to BRICS as a term, it’s an economic term about countries that are expected to have strong economic growth that’s consistent and out of those initial, only China succeeded at it.

Ryan Isaac:
I was gonna ask if… I had two questions, the first one will be, out of even the BRIC acronym or even all the emerging markets, there’s like two places in the world that are actually driving actual economic innovation and growth. India, would be one of them, China. But when we’re talking about, I mean, is Brazil, an economic powerhouse? Is Russia in the mix just because they’re putting themselves in the mix a lot lately? Or are there like two countries driving this whole region really, or are there a lot of strong places?

Rabih Dimachki:
To have this conversation I think it’s important to separate between the stock market or like equity performance versus the economy. When we are talking about the Russian economy, pre-Ukraine invasion, pre-sanctions, right?

Ryan Isaac:
Yeah.

Rabih Dimachki:
We’re talking actually early 2000s, like Putin wasn’t even really that strong in the picture…

Ryan Isaac:
20 years ago. Got it, okay.

Rabih Dimachki:
20 years ago, Russia being one of the largest exporters of oil in the world, biggest natural reserves in the world, huge geography, and on top of that, Russia had a very deep bond market, ’cause stock market wasn’t that liquid and deep, but their bond market was huge. A lot of strategies in the early 2000s were like, “Oh, let’s go into emerging market debts, especially Russian debt, and we’re gonna capture some really high interest rates,” so each country… That was the example of Russia, China, and we know it, it’s the factory of the world, you’ve got cheap labor, everyone invest there and they make their money, so each country had a feature that put it on that table, but was each country on its own as strong as like their opinion in, or the US? No, they are still emerging countries to start with.

Ryan Isaac:
And they probably cycled, I mean, if I said, “Well, what happened to the high interest yielding Russian debt?” Your answer would be?

Rabih Dimachki:
Yeah, currency devaluation, and now currently under sanctions, so it’s ups and downs.

Ryan Isaac:
Same as the Greek debt that everyone invested in for a period of time too?

Rabih Dimachki:
Yep. Brazil has experienced lots of currency devaluations over the past two decades. South Africa did not fulfill the expectations of strong economic growth, and for multiple reasons, we’re gonna talk about them, but yes, BRICS, I think is now more on the news, not because those countries were good, some of them made it, some of them don’t, but because now there are other countries wanting to join the BRICS, as in that’s why…

Ryan Isaac:
Yeah. They’d rather change the acronym now, they have to coin a new term. I mean, it’s gonna be… I’ll let someone else do that. Okay, so that’s what the BRICS are, but they’re just a subset of emerging markets, which make up about 10% to 12% of the world’s stock market, when you were just talking about public markets, which means if you are building a globally diversified portfolio of stocks, then about that much would be in your allocation if you’re trying to capture it and how it exists in the world, which is kinda how we build portfolios too. So, I guess I’m still on the subject, I’m kind of curious like why is it still just 10% of the world? Here’s what I get from clients that’s confusing.

Ryan Isaac:
China’s gigantic geographically. Its population is huge. It’s economy is huge. Makes up such a small portion of the world stock market. Russia could be, argue the same thing, Brazil’s a giant land mass too, why are some of these humongous countries with huge populations and seemingly big economies only making up a small portion of the world stock market? I think I know the answer, but how would you answer people that?

Rabih Dimachki:
There are two answers, the first one is that stock market is a capitalist feature, and not all countries have a capitalist economy, right?

Ryan Isaac:
Well, say that again. The stock market is a capitalist feature and clearly, yeah, not every country in the world is a capitalist in nature. Yeah, okay.

Rabih Dimachki:
Right? That’s one, two, it’s also the big difference between an economy and a stock market, when we’re talking about the stock market, global equities around the world, the US is around like 65% of them, the rest of the developed country is… Excluding the US, are around 30% and the rest are emerging, whereas if we wanna talk about economic size, the US is the largest economy with like $24 trillion, followed by China around $19 trillion. And then you’ve got the European Union around $14, $15 trillion, give or take. And then the rest of the countries come afterwards. So when we’re talking about an economy, the allocation is different, the weight is given to those countries where as stock market, it’s still dominated by the US, and because a big part of how the US economy is structured, it’s structured on strong consumers and businesses that are continuously innovating creating new products, creating new services, and this value is reflected in company balance sheets, and this value is gonna be reflected in a stock price. Whereas in China, for example, the value is that you’ve got a big government that’s spending on huge infrastructure projects and railway stations and transportation, and it’s not as prominent in individual companies and that’s why…

Ryan Isaac:
Yeah, not everything is public.

Rabih Dimachki:
Not a lot… One, not public. Two, based… They’re like in 2021, the Chinese government kinda crashed the tech sector over there, and Alibaba Jackman, no one knows where that guy is at this point, so because the economic political… Economic/political system does not favor, for example, individual endeavors of entrepreneurship or the shift of power from government to corporate Boards. This push and pull translate to different weightings between Economy and stock market.

Ryan Isaac:
Makes sense.

Rabih Dimachki:
I’m walking a very thin line where I try to keep everything economic without going into the politics.

Ryan Isaac:
Yeah.

Rabih Dimachki:
It’s the reality of things.

Ryan Isaac:
We’ll save that for another… If someone else’s show, I could do the politics of it all.

Rabih Dimachki:
Yup.

Ryan Isaac:
Or the Dentist Money show after hours, and then we can do that another time. There’ll be drinks served and politics discussed. Okay. So I think that’s a really good description, I think of what BRICS are emerging markets. Okay, so now the question is, why are people texting us about something about the BRICS in the news, what’s in the news right now about the BRICS that make people maybe worried right now?

Rabih Dimachki:
Yeah, that’s the article you and I were talking about. And it seems like countries like Iran…

Ryan Isaac:
Oh, sorry can I… Sorry, really fast, I’m gonna break in there, I apologize. As you’re answering that, what’s in the news? I want you to also answer the question, is it new news?

Rabih Dimachki:
Oh no.

Ryan Isaac:
That’s the question. So that… I want you… What’s in the news? And is it new? Is this like breaking. Is it gonna shift everything. As of right now, looks like it’s brand new, that’s the question. So, what is it, and is it new?

Rabih Dimachki:
The news is that there are some countries such as Saudi Arabia or Iran that now want to join BRICS, and the reason they want to join it, not because now there is expected strong equity performance out of these countries. No. The reason they want to join it is because once you put yourself into that group, you can sign treaties, you can help each other out, facilitating trade, you can lend each other money and have a new way to finance your economy away from the traditional International Monetary Fund, the IMF, or the World Bank. And there are political reasons for it, but there’s also economic operation reasons for it.

Ryan Isaac:
Okay.

Rabih Dimachki:
And the fact… I think the question is like, “Is it new or is it not new?” The fact that there is political co-operation across nations that will translate to something economically, it’s not new, but I think people are freaking out, it’s because most of those countries, let’s face it, do not really confirm to the western ideology of how an economy should be brought up.

Ryan Isaac:
Sure.

Rabih Dimachki:
Or like defending democracy. So like in the early 2000, late 1900s, when the Eurozone was being formed, you’ve got a bunch of European countries deciding, “Oh, we’re gonna all have the same currency.” I don’t think the West or like people in the US reading the news were freaked out, although it’s a huge economic power, right?

Ryan Isaac:
Yeah.

Rabih Dimachki:
It’s the…

Ryan Isaac:
Wait. What year would this have been when that was formed?

Rabih Dimachki:
Well, the thing with the EU is that it took… It was formed on multiple stages and not all 27 countries came together…

Ryan Isaac:
Yeah. At one time.

Rabih Dimachki:
It started as a small group and then it went… But you can say late 1990s after the Berlin Wall fell down in 1989, up until 2004, 2005 was the bulk of when the EU was formed. And yeah, everyone is saying, “Oh, the Euro and is gonna replace the US dollar.” But…

Ryan Isaac:
Yeah, I remember that, yeah.

Rabih Dimachki:
They are European countries. It’s like they’re all the West, so it was fine. I don’t think people were freaking out about it on the media as much, but now, because we’re talking Russia, China, Iran, Saudi Arabia, India, those countries politically, there’s push and pull with the US and it’s like part of life.

Ryan Isaac:
It’s the way the world turns, yeah.

Rabih Dimachki:
Yeah, because they’re on the different side of the globe, I think it’s just adding a little bit of gasoline to the spark, but it’s something that’s happened before.

Ryan Isaac:
What’s the argument people have of why it’s scary, make the argument for them, even though… Even if it’s ridiculous and it’s totally not true. What’s the worry?

Rabih Dimachki:
I think the worry is, “Oh, when all these countries work together, they’re gonna be economically much bigger than the US, they’ll have bigger political power than the US, and they can cooperate together, so they can have a stronger military will then the US.” And then what will happen to our national security, our savings, our dollar, and I get it…

Ryan Isaac:
 And that seems fair. Okay, so that seems ridiculous, that’s fair.

Rabih Dimachki:
It seems very fair, but this is… I don’t know. I think we should have more faith in humanity and turns off a… Imagine can a world where I can… There is that narrative, but I can imagine a world where the US has a very fast railway like China has, and I can imagine a word, well, China has entrepreneurs that are creating great products and making the life better for everyone. It can go the other way, where we can co-operate after the politician sorted out, but for some reason, bad news beat good news to our phones and people are afraid.

Ryan Isaac:
Yeah. It’s our natural… It’s our cave-person brain protecting us from potential danger, right? Scanning out for bad news, okay, so that’s what’s in the news right now. I’m gonna repeat that back to make sure I understand it, everyone’s on the same page, the news right now, which is certainly not new, there’s just more countries that would want to join the BRIC nations, and that could be political alliances, trade, currency, economic reasons, could be military, currency stabilization using similar currencies or the same currency. Did I get that right? Is that a good recap of why they’re doing it and why it’s in the news right now?

Rabih Dimachki:
Yeah. It’s very important. Most of these countries are like oil exporters, right? And if they are working together, they don’t have to settle the price of a barrel of oil in the US dollar anymore. Which for them, lower transaction cost, they can get better deals than what… Like the global market that’s selling them, and this is why I think why it’s feeding it to the fair… Oh, what will happen to the US Dollar? Is this gonna hurt us…

Ryan Isaac:
Okay, that’s a question then. So if more countries… And it’s true that the US dollar is not the reserve for every country in the world, that’s not happening, but it’s still the major currency, so what happens when less countries use the US dollar?

Rabih Dimachki:
Also two parts for this question. I really like this question. There is a difference between the currency is being used for global transactions, and the currency is a reserve currency. We will define a reserve currency in a second, but when we’re talking about global transactions, we’re talking about like, how can you buy gold or how can you buy copper, or how can you buy lithium for batteries, or how can you settle oil futures. Those, because the US is dominant, the US dollar is the most prominent currency, most liquid, you can always get a settlement when you transact in it, most of these transactions happen in the US dollar, but if a country is trading with another country and neither of them need the US dollar, this is now their way of transacting away from the US dollar.

Rabih Dimachki:
So far, the US Dollar as a currency is around, according to the data I saw, I think it’s one year old, it’s not like 100% up-to-date, it’s like 88% of global transactions. So out of all global transactions of the world 88% are settled in the US dollar. If that percentage drops, it doesn’t mean that the dollar weakens, it’s not used, something else is being used.

Rabih Dimachki:
This is where Bitcoin aspires come into play. They think we can have, to a certain extent, a global digital currency that replaces everything, right? But the reserve currency aspect of it, which I think is more important to the stability of the currency, is how much are other central banks around the world holding US dollars in their Vaults to protect their own domestic currency? And this is the thing when we say, “Oh, the US is a reserve currency.” And for a country to become a reserve, it doesn’t happen overnight, that the US suddenly every central bank in the world wants to have dollars and gold in their vault to protect their currency, to actually become a reserve currency the argument, I think, we can make is like if you make a political alliance or an economic alliance, and now you guys are a big portion of the global GDP, it doesn’t mean that suddenly you have a reserve currency. For a reserve currency to exist, it’s a feature of being a global power, but it doesn’t come just because you’re…

Ryan Isaac:
And it’s a stable one.

Rabih Dimachki:
Yeah, you need to give access to private market, so the reason there are reserve currencies in the world is because in times of stress or in terms of foreign direct investments, in good times and in bad times, you need to be able to transform that currency from something sitting in your vault, to a transaction that might be, oh, I’m gonna invest in a new country, open or support companies to invest in another country, for example, so when American companies want to invest in China, you would expect to facilitate Apple and building a big factory or Tesla to build a big factor in China, the Chinese government to facilitate transactions to be able to easily transform their US dollars to Chinese Yuan or RMB, for them to be able to pay Chinese workforce. So access to private markets. If there are companies that transact in one company that wanna do an investment in your country, in your domestic country, you should have access… Need for that money, right?

Rabih Dimachki:
It should be deep liquid capital markets, and it should allow that currency like the US dollar should allow free flow of capital. If the central bank in the US decided not to help other countries out with their currency reserves, no one will use the US currency. So there are characteristics that each country needs to work on to make its currency a reserve currency. It should be free floating, it should give them access to capital markets and companies that transact in those markets. It should be a lender of last resort and like in during COVID, part of the big stimulus plan was like, okay, we’re gonna give Americans money, pay cheque, we’ll worry about that later with inflation, but we are also… The Central Bank was like, I’m gonna open a line of credit for all other central banks around the world to be able to borrow from the US dollars to protect their own currency. So not only being a big economic player will make you owner upper reserve currency. You need to be willing to be the lender of last resort and during times.

Ryan Isaac:
Okay, so I’m hearing… Here’s some words I’m hearing, in order for someone to emerge as a currency reserve superpower, not to mention all the other kind of super powers you can be just in terms of a currency reserve. I’m hearing words like stability, open markets, free markets, capital, willingness to lend, faith, I guess the faith of the people to some extent in the country, in the economy public companies, not government, federal-owned companies like our [0:25:56.1] ____ countries.

Ryan Isaac:
So when I hear these words, If I’m accurate on that, I hear those words and I think about the news and I’m like, it seems like they’re still gonna keep struggling…

Rabih Dimachki:
To achieve… I think they’re far away, those bullet points, I got them from an IMF Article, like the scribbling stuff, and there’s a really good point, on top of all that we’ve mentioned, a legal system that protects property rights. I don’t wanna go political, but this is a big…

Ryan Isaac:
On top of all those words, you need to have a structure of a legal system that protects personal property rights.

Rabih Dimachki:
Protects property rights, whether they are like personal or for the the government.

Ryan Isaac:
Which is again, a thing that is not… Those are not typical characteristics, not that they can’t be, but those are not current characteristics, many of them of a lot of those countries, which is probably why they still, even despite their size and the mass size of the economies, while they still just make up a small portion of the world’s stock market, for those reasons. And why there’s… This isn’t an over and… This isn’t new news, and it’s not overnight news, and why it will be a long struggle.

Rabih Dimachki:
Right.

Ryan Isaac:
Not that it can’t be, but those words don’t describe the current situation of those countries for the most part.

Rabih Dimachki:
Nope. Not their regimes, not how… The maturity of their economies, and for that reason, I’m like, I get the news, but let’s just dig a little bit deeper to see what it takes to materialize that fear, right?

Ryan Isaac:
Okay, so I’m gonna ask… I have two questions. Let’s do the one of them first, which is, I guess how you do it, you don’t ask two questions at the same time.

[chuckle]

Ryan Isaac:
Okay, so let’s say it actually did materialize quickly. I’ll just hypothetically say more countries join, they get together, they become a reserve currency super power. How would that affect the average client, an average listener to the Dentist Money Show, and I’ll paint that picture to the average listener, average client is a dentist. There’s a few non-dentist. Shout out to all of you listening to the Dentist Money Show if you’re not dentist [laughter] It’s an interesting choice of podcasts but, thank you…

Rabih Dimachki:
No judgement.

Ryan Isaac:
No, thanks for being here. So dentists many, like in our client base, it’s three quarters or more who are practice owners. Many of these people throughout their career will own a practice, they will own a home, according to our data, maybe a third might own a commercial building. And most of them will have accounts of stocks and bonds, mutual funds, various accounts. And they are gonna save 15% to 30% of their income over 30 years and amass, most of their wealth in their practice and in their accounts along the way, some people might have a little bit more nuance in that, but that’s a typical person. So given that scenario, let’s say the hypothetical situation where these countries did come together, they did form like a big reserve currency that is very different, takes away from the United States. Are there strategic changes that the average client should be making to the way they run their business, save their money, invest in a portfolio, build a portfolio, buy real estate, get loans, any of that stuff that you can think about? If it happened.

Rabih Dimachki:
If it happened, and I’m hoping all of our listeners are already in a globally diversified portfolio of stocks and bonds, right?

Ryan Isaac:
Yes.

Rabih Dimachki:
If they are there, they are 90% done in terms of the work you have to do. You’ll have to go into minor details around, okay, are my international stock holdings hatched or unhatched? Are they investing directly in that exchange in that foreign country, or are they through something called American Depository Receipts, ADRs. Leave this to us to worry about, right?

Ryan Isaac:
Yeah.

Rabih Dimachki:
But if you are in a globally diversified portfolio that has access to multiple currencies, to multiple interest rates around the world and to multiple companies that provides products and services to the people of that earth, I think you’re gonna be fine. Because if, for example, one power topples another power and the weaker takes a hit in their equity market or in their bond market, your portfolio already has a part of the winner as well. Right?

Ryan Isaac:
Yeah, that’s diversification, you got some losers and some winners at all times, and some middle of the road people. And you’re saying that if there were changes and you own a globally diversified portfolio, which is what we build for clients. And emerging markets went from 10% to 30% of the world, which would be insane, that’d be a big change. Not saying that can’t happen, but you would… That would be a strategic decision you could make, so kind of like how the United States over the last couple of decades has gone from 50 and what? 55% of the world stock market, say closer to over 60%. That’s a change.

Rabih Dimachki:
Yeah. It was around 45.

Ryan Isaac:
Okay.

Rabih Dimachki:
Around ’06, ’08, 45% of the global market. And now it’s touching the 60%. Right?

Ryan Isaac:
So you’re saying that’s an adjustment you would make because you’re just trying to buy the world’s stock market as it exists to have it represented in your portfolio, how it’s represented in the world, so that’s an adjustment you could make is till your portfolios towards how that has changed. So if emerging markets goes to 10 to 20, something else would shrink in your portfolio, would grow in emerging markets and shrink somewhere else. And that’s normal, that’s an adjustment that someone can make.

Rabih Dimachki:
Yeah. That’s the importance of rebalancing your portfolio so you don’t miss out on…

Ryan Isaac:
Okay. That’s rebalancing.

Rabih Dimachki:
That’s rebalancing.

Ryan Isaac:
That’s rebalancing. That’s in the scenario if something happened like soon, like big and soon. The likely path is that nothing big or soon will happen and we’re not talking about political, more wars more like… We don’t know, but we’re talking about economic currency and stock market implications. Does anyone need to change anything? ‘Cause that’s a question people text like, I see this news, should we change anything?

Rabih Dimachki:
No. Yeah. It is no. And I’m trying to give the benefit of the doubt. Right?

Ryan Isaac:
That’s fair. Yeah.

Rabih Dimachki:
But all the factors that might impact the stock market are long-term in their nature, so what would ensure a company is making its money and its stock price is healthy, right? Is that if it has a good market. If it has a good market, it means that one, there is population for it. I don’t think we are, COVID days are over, thankfully. No one is dying, right? So there…

Ryan Isaac:
Don’t say they don’t know. We’re not gonna jinx us now.

Rabih Dimachki:
[chuckle] Don’t jinx us.

Ryan Isaac:
We’re not gonna say that, we’re gonna… Yeah. Anyway.

Rabih Dimachki:
But the point is you need… Because economic growth is measured on the long run by two factors. One of them is a sustainable labor supply, which is dependent on a growing population. That’s one. And the second one is a continuous technological growth and inventions and all those stuff. Like whether it is creating a new product like ChatGPT that no one knows about or whether now your car can turn on without having to be inside of it. Like small technologies and big technologies.

Ryan Isaac:
Sure.

Rabih Dimachki:
Those two factors, labor supply growth and increase in the productivity of that labor measured by technology or what will determine whether the equity market on the long run will do well and whether the stock will do well. And those two factors don’t happen overnight. Unless we’re watching Marvel and Antenna snaps, half the planet off population is not going away.

Ryan Isaac:
Yeah.

Rabih Dimachki:
And technology, I don’t know like… Well, people forget the technology, we know this know-how, it’s embedded in our day-to-day life, it’s not like we’re gonna forget, we forgot how the permits are built, but I don’t think we’re gonna forget how an iPhone was built. [laughter]

Ryan Isaac:
I don’t man. I’m kinda on the alien train of the pyramids being built. [laughter] I don’t know. I need some convincing on that.

Rabih Dimachki:
This conversation took many turns. [laughter]

Ryan Isaac:
I wanna talk about how aliens built the pyramids. That’s what I wanna get into. [laughter] Okay, yeah, I think this addresses the question, so I’m just gonna recap in my mind what is a BRIC, we hit that. Why is it in the news right now? We hit that. Does this inherently mean I need to do something different in my portfolio and we hit that. I think the only way you can answer yes to that question is if you own a portfolio that is hedged in just one part of the world only, one country, an overly constant portfolio in one sector, one country, one company or something. That’s what diversification is, and the more time goes on in more research and more academia and more just data from experience shows us that a diversified portfolio is gonna be the shortest way to capture the returns you’re looking for with the lowest amount of technical risk. And to be able to capture the changes in the world that you can’t predict and you can’t control.

Ryan Isaac:
So I think we covered that really well, and then we talked about aliens and pyramids, so [laughter] I think this was a really complete conversation. Is there anything else you wanna say about… I’m just looking at your list too, because you put on your bullet points, what’s a reserve currency, how would global leadership change. I think you covered that. Should I be worried? And can I control this or is it out of my control? I think that is an obvious question. We hit everything?

Rabih Dimachki:
Yeah, I think we hit everything. I love it. [laughter]

Rabih Dimachki:
Yeah, thank you. I’d like to be able to react to this stuff, but I also like to take away principles that if you listen to this five years from now, and assuming that there wasn’t anything major that came out of the exact names we’re talking about right now that you just go, oh, what I want people to take, if you listen to long term from now is that there’s still principles that work as long as the world is turning, and it doesn’t mean nothing will ever change, it doesn’t mean your strategy can’t change, but it means there are some basic principles that’ll work for very long periods of time, and they’ll work for everybody, you don’t have to be special, you don’t have to be extra rich or wealthy, you don’t have to be in the know or have inside information, they’re just principles are gonna work for everybody over long periods of time, pretty consistently.

Ryan Isaac:
It’s the boring stuff, it’s all the… We’re talking about the gym and fitness before we hit record today, and it’s just the same principles that are just kind of like time tested and boring, but I hope people can take away those principles from this conversation because I think… Listen to this five years from now, exclude the first 30 minutes, insert the current news, whatever is happening in five years, but then the same principles are likely to apply. So that’s what I hope people take from this. So thanks for being here Rabih on a…

Rabih Dimachki:
Oh my pleasure, I loves this.

Ryan Isaac:
Snowy afternoon. It’s really snowing where you’re at. It’s not good.

Rabih Dimachki:
It is.

Ryan Isaac:
Oh my gosh, man. Alright, thanks for being here and thanks for everyone for tuning in, we really appreciate you being here with us and listening, if you have any questions, you can go to the website, dentistadvisors.com, you can send us messages, email, DM us and let us know you want any topics on the show, we love that kind of stuff too. So thanks for being here. And we’ll catch you next time on another episode of the Dentist Money Show. Take care now. Bye-bye.

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