In Argentina, it would take a sense of ambiguity that most traditional investment structures were not created to absorb to build a portfolio. Ordinary recommendations of diversification, long-term investment, and compounding gradually assume a degree of financial stability that Argentine investors have seldom been in a position to assume. Those who have succeeded in expanding their capital significantly over time, have generally done so by adjusting the principles of the world to the realities of the country instead of implementing them in their entirety, and by perceiving the country peculiarities not as the block to evading, but as the variable to be integrated into the effective strategy. Such an adaptive way of thinking, rather than a particular strategy, is likely to divide those who maintain wealth and those who lose it.
Currency hedging has taken a central role as a portfolio thinking among Argentine investors whose investments are pegged on assets in pesos. Instead of taking the entire burden of devaluation risk meekly, the sophisticated players have come to learn to counter their holdings through currency positions, arranging their overall holdings in such a way that gains on foreign currency positions balance out losses on domestic ones when the peso has been sharply weak. Such a strategy needs continual monitoring and balancing, as the correlation between various asset classes changes with the macroeconomic environment, but traders who have adopted this sort of dynamic balance have always done better than traders who view their portfolio as a fixed set of holdings to be reviewed every quarter instead of being actively managed.
The correlation between the Argentine equities and the currency movements has provided tactical opportunities that traders keen enough have learned to predict. The exporting companies, especially those that will have revenue in dollars and expenses in peso currency, are likely to gain the results of the devaluation, which will later be reflected in the share prices. Forex traders that track the dynamics of forex trading tend to place their trades in these equities before they see the currency move in a particular direction based on their currency market analysis, which forms a leading indicator in their equity decisions. This cross-market thought necessitates an acquaintance with more than one asset type at a time, yet the informational advantage it generates can be great in those who are prepared to do the analytical work in both arenas.
Capital preservation has taken a more prominent role in Argentine portfolio strategy than the growth-oriented models usually assign it. The loss of savings through inflation or even through a swift devaluation has given many investors a risk hierarchy in which the need to save the current capital is a priority to expansion of capital at least until the market provides a better view to the aggressive position. This is not a timid conservatism. It is a logical reaction to the environment in which the cost of being wrong has exponentially increasing consequences. When such traders have internalized the priority, they will tend to scale up their more aggressive positions relatively small, leaving the bigger allocations to setups where several factors are in their favor, and not to swing hard on any opportunity presented to them.
Staggered entry strategies have enabled the Argentine traders to control the timing risk which is associated with operating in markets where price movements and reversals are more frequent as compared to cooler environments. Instead of making a full-sized position at one price, seasoned players split their target allocation into tranches, making a series of smaller position entries as the trade progresses in the desired direction or as indicators of confirmation accumulate. This style is explained as buying conviction, not buying price, by a trader in Mendoza who has a small personal fund to manage, and each new entry is an indication that the original thesis is being confirmed, not an average down on hope. The difference in motivation has significantly different results over time.
The sustainable growth of any portfolio in Argentina ultimately requires one to have something that no tactical planning can adequately provide, a clear grasp of the risk taken and time horizon that the country moves at and vice versa. Those investors that have attempted to apply foreign portfolio templates to the Argentine environment, but fail to consider the particular political cycles, the volatility of elections, and the recurring changes in regulations have always performed poorly as compared to those that have created frameworks based on the local information. Forex trading is the epicenter of this difficulty since currency dynamics have an implication on all other assets in an economy that is dollarized in practice as Argentina is. Individuals who learn to read currency indicators properly do not only enhance their trade, they create a better map of the whole investment landscape they are exploring.