Big Bets on Emerging Markets Can Bomb

Even if Bennett is correct, there will be declines, and any drops that affect emerging markets and commodities will crush the allocation she's targeting. The correlation between these asset classes has been high this decade.

As much as I agree with her (and I do), what if the thesis is simply incorrect? What if the dramatic increase in bank lending in China turns into a problem? What if the resources China has been supposedly hoarding turn out to be all its leaders need to deal with a crisis? What does that do to Brazil and Peru?

What if the world needs the U.S. to spur growth? Even China bulls concede the country isn't big enough to lift itself and the world into economic expansion.

Every investment thesis has the potential to be wrong, so making such a big push into emerging markets could prove disastrous if Bennett's predictions don't materialize. Her strategy seems to ride on one outcome. Perhaps Bennett has considered the potential for error in her analysis, but that wasn't conveyed in the article.

I always avoid making big bets in the portfolios I manage. Investors have a habit of jumping into the wrong thing at the wrong time, and the results are often ruinous. If you're not as good an analyst as Bennett is, you should consider a less aggressive approach.

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