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In Mr. LeBaron’s view, the easy-money policies of central banks, including the Fed, have created what he calls “administrative markets”–in which prices are set at least partly by government policy rather than by market forces.
But, he worries, that can’t last forever. “In complex systems, the dynamics are predictable but the timing isn’t,” he says. “It’s like adding a grain of sand one at a time to a pile: You can’t tell when it will collapse, but you know it will.”
Mr. LeBaron, who invests only his own money nowadays, has no exposure to the U.S. stock market; the only bonds he owns are inflation-protected U.S. Treasurys.
The only stocks he owns are based in China, among them INESA Electron, a technology manufacturer, and Shanghai Chlor-Alkali Chemical. He holds the shares directly through certificates in safe-deposit boxes, rather than in electronic form; he thinks it is risky to have “custodial” banks hold electronic securities for safekeeping.
Mr. LeBaron believes the Chinese have more fiscal and monetary discipline than the U.S. So, he says, “I follow China around the world and invest where they invest.” Recently that has meant countries like Nigeria, Ghana and Kenya, as well as Canada and Mexico. Individual investors with the same idea might consider diversified, low-cost funds like the Market Vectors Africa Index exchange-traded fund, which charges 0.8% in annual expenses, or $80 per $10,000 invested, and the iShares MSCI Canada and iShares MSCI Mexico Capped ETFs, costing 0.53% apiece.
Can individual investors still succeed in the riskier world he foresees? Absolutely, Mr. LeBaron says. “Institutions tend to invest with a one- to three-year time horizon at most,” he says. “My suggestion for individuals is to change the horizon. Go longer.”
Or go gutsier. If you are tough, you might try emulating one of Mr. LeBaron’s most successful techniques at Batterymarch, where he ran a contest to see who could pick the stocks that would perform worst–not best–over the next year.
“It’s harder than it sounds,” he says–especially when you realize that Mr. LeBaron then went out and bought them all, more than 100 at a time. If you can hold on for several years, he says, “you should make enough on the ones that don’t go bankrupt to make up for the ones that do.
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