How I Choose Which Countries to Invest In?

Co-Authored and Reviewed by Gagan Sandhu, MBA - The University of Chicago Booth School of Business, CEO of Xillion
Posted on . 5 min read

I spent the first 25 years of my life in India & the last 22 years in the US. I earned & invested almost all of my money in the US. There were times when I was tempted to invest in international stocks (India, China etc) or real estate (India). But my intuition kept telling me to stick with the US.

NOTE: This article is about investing, economics etc. This is not political commentary. After much thought, I think I’m able to put this intuition into words. I call it the L2P2 framework: Life. Liberty. Pursuit of Happiness. Purpose.

  1. Life: Right to life is the most fundamental human right & it is the foundation for humanity’s growth & prosperity. True measure of this is at the margins: if a journalist or a political dissident or an artist is killed, it pushes at least one generation away from those professions. When this happens, less capable & less motivated people take these jobs, thus reducing the economic impact.

  2. Liberty: Freedom of thought & expression ushers growth through new ideas. If even one person ends up in prison for ridiculing a nation’s leadership or policy, as happens regularly in most developing nations, an entire generation learns to curtail their thoughts, clip their ambitions & do less adventurous things. This leads to less risk taking, which leads to slower economic growth in the long term.

  3. Pursuit of Happiness: It’s one thing to have the liberty, but it’s another to have the support to pursue a goal that leads to individual happiness. The nations & cultures that are more supportive of weird & wild ideas tend to enjoy higher growth over the long term. This support is in the form of laws, education, family support (or at least nonchalance), peer pressure (lack of) etc.

  4. Purpose: A nation’s collective purpose is like a magnetic field that subtly guides the actions of its citizens. For instance, Afghanistan’s purpose to be an Islamist country aligns the population to do things that diminish 1, 2 & 3. America’s purpose as defender of freedom aims to reinforce 1 & 2. When this sense of purpose is strong, people voluntarily choose to do the right thing. Some European countries have less clear purpose in the 21st century so their economies are suffering as a result (Dear UK, what exactly do you now stand for!)

Life & Liberty are fear dynamics and are best measured at the margin. Why? Because if one journalist is killed or one CEO is jailed unlawfully, the fear will drastically lower the animal spirits & risk taking ability. This will have major impact on economic productivity over the long term.

Purpose & Pursuit of Happiness, on the other hand, are motivation dynamics and are best measured as averages because motivation/purpose & happiness are personal. While external forces do have some impact, the driven individuals will find a way to keep their animal spirits alive & they will take the risks.

How can we measure each of these?

After a lot of research, I found that the Human Rights Index (HRI) captures the first two (Life & Liberty) really well in one concise metric. In this graph, the darker the color for a country, the higher it scores on these two measures.

3 & 4 are much harder to measure, at least scientifically. Since I know US & India really well, I know where they stand on these. For instance, happiness is valued higher in the US while honor, culture & family values are held much more dearly in India. I looked far & wide but I’m yet to find a good, uniform measure for this that would work across different countries. I’m open to ideas here.

So how do I use all this information?

I index L2P2 as:

40%: Life

40%: Liberty

10%: Pursuit of Happiness

10%: Purpose

I believe that the right to Life & Liberty constitute around 80% of what makes a nation successful. Why? As I explained above, Life & Liberty are fear dynamics so they have the biggest impact on risk taking & entrepreneurial activity.

Based on this, I would not invest my money in any nation that scores less than 0.8 out of 1 on the Human Rights Index because I’m not sure how my investments could grow long term in a country that doesn’t empower its citizens to be their best.

Best demonstration of this correlation is in the GDP data where you can see that countries with higher HRI typically have higher GDP per capita (oil producing countries are exceptions to this).

Also, people all over the world vote with their feet. Net migration from countries with low Human Rights Index to those with high HRI continues in the 21st century:

Of the countries that are rated about the same on the human rights index (say above 0.9), I invest in those that have a stronger purpose & are more tolerable to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in square holes……!

Over the last twenty years I applied this framework implicitly & invested almost exclusively in the US. I think that’s because the US scores pretty darn high in all these areas. (Australia, Scandinavian+Western Europe & Canada also score high in at least three out of four areas, especially Life & Liberty, but their scale is much smaller so I stayed away from them.)

I hope this was helpful. I would love to hear your thoughts on the L2P2 framework.

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