The Common Sense Investor

The country of Iraq is constantly in the headlines. After the country’s invasion by American military forces and the atrocities done there both by the American military (Abu Ghraib) and Iraqi rebels (the ambushes, bombings and televised beheadings of kidnapped expatriates), the country is now also in the midst of fevered discussions in business and investment circles. And the hot subject of debate is if it is a good investment decision to invest in the new Iraqi Dinar.

For straight-forward capitalists, there is really nothing morally wrong with investing in Iraqi money because they see it as just any other investment to be evaluated against standard measurements for quality investments. But there are also certain groups that equate these investments with something more, placing an emotional angle to the whole business of investing (e.g. let’s help Iraq rebuild, or let’s not take advantage of a country we just invaded). As we know, emotional investing is bad. The common sense investor needs to ask whether investing in Iraq makes good investing sense (or not). We think that it is clear that any investment in Iraq (whether it’s the Dinar currency or Iraqi companies) is a bad investment. It’s not that you can’t get lucky: you can. But we’re after consistent, reliable investments. We don’t play the lottery with our money.

So let’s consider these factors without really delving into the whole invasion / liberation debate.

Sometimes you need to vote your conscience with you money. Many groups discourage investing in Iraq because of strong emotional feelings about how these investments will be paid eventually. These are groups that in general opposed the entry of American forces into the country. This group also says that the investments being poured into the country is something that will eventually be paid in “blood” by the workers who are working to rebuild the country (ambushes, bombing, kidnappings and executions). They also assert that the investments are done not out of a benevolence to help the Iraqis but from a position of greed, knowing that a renewed Iraq with their businesses in place could only mean a huge returns to their investment. While we won’t take a position on the Iraqi war, we do commend those investors who take a stand for their conscience.

There are also groups that see investing in Iraq as a great way of making money fast and getting huge returns on the money that they invest. This kind of attitude was also seen during Iraq’s invasion of Kuwait when speculators took advantage of the plunge in the Kuwaiti Dinar and then cashed in when the value soared after its liberation. We cannot recommend this strategy as it is far too risky and not based on common sense investing principles. Put your money where you know it will grow, not where you hope it will grow.

A third model-group might consist of investors who understand that whatever happens, Iraq is not a good place for investments - weighing in economic fundamentals, the peace and order situation and the overall state of geopolitics in the region. This is our position and should be the position for any common sense investor.A good investment is one with low risk but high, consistent returns. Iraq most likely does not meet either of these criteria.

So the question we began with is, should you invest in the Iraqi Dinar? The short answer is you shouldn’t. The situation in the country is far too volatile that a Kuwait-like appreciation of its currency would be too far off, if at all possible. For investors, that type of long-term, unpredictable commitment is not a good idea.

For those who just cannot be deterred from speculating in Iraqi dinar though, the sage advice is to make a prudent exposure. Don’t invest too much so that, if your investment does not pan out, it won’t hurt your finances too much.