The Best Investment


The best investment you can make is in yourself… in your intelligence. The second best is in value.

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Recently a reader asked me if I had read the latest edition of an investment newsletter produced by a well known economist.

My reply: Someone does send this to me but I never read this or any other newsletters. If I do I’ll find one really good evidence that shows why everything will go up and another why it’ll all go down and a final one that will say it will all stay the same.

I stick instead to the data flow I have developed over the past 40 years and consume the raw data thus coming to my own conclusions.   Then we try to to focus on how to helping ourselves and readers become more intelligent so they can prosper no matter which way the wind blows.

With just a quick glance it appears that this guy is looking at pretty much the same data I do and write about often.  His focus is on long term bull – bear trends and value.
Here is the most recent bull – bear chart I have sent readers.

dow-chart

The problem with depending too much on these charts is that small shifts in reference points leads to greatly different conclusions.

One can predict (and manage investments) of very small moves of equity and currency valuations in the very short term.  This is a massive industry… speculating on short tem volatility.  One can predict very long term trends.

What one cannot do is zero in on is the price of a currency, equity of commodity  in any one particular day, month or year.

One cannot depend on upticks in our investments always nicely coinciding with our financial needs.

There is little doubt that there have been major bull and bear cycles of about 15 years up and 15 years down since 1900 or even earlier.  The last bear cycle started quite clearly in 2000 and was less severe (probably  due to government tinkering) in its early stages than preceding bears.  Hence the more severe downturn now.

Previous bears last nine years (1906 to 1915) 13 years (1929 to 1942) 16 years (1966 to 1982).

Having said this, our research suggests the bear will end in 2013 to 2014…. but if each bear is lasting longer and this trend continues, we could see the bear going to 2018 before the next big upwards move.

The keys as I have written often could be war… the huge conflict or an effort on mankind that creates new waves of technology. The boom has always been fueled by this technology being shifted from military to domestic use… steam power… internal combustion power… jet power… internet, etc.

Watch for this struggle and the new technology.  They will be really important early indicators of the next bull indicator.

One of my key sources of analysis is Keppler Asset Management.

Once a quarter we look at a major and emerging equity market value analysis by Michael Keppler.

If you are a new subscriber learn about Keppler Asset Management here.

Keppler’s January issue will arrive shortly and we’ll be reviewing it at this site.

In the meantime, we also track the investment breakdown of the State Street Major and Emerging Market Global Advantage Funds because Keppler is adviser to these funds.

This review gives us a hint about good value shares in the good value markets.

The investment objective of the major market fund is to beat the Morgan Stanley Capital World Total Return Index and is described as described by State Street here.

state-street-data

The emerging market fund has a similar objective but with an emerging market index.

state-street-data

The performance of these funds shows how following value has beat the market long term.

Major Market

state-street-data

Emerging Market

state-street-data

This approch has proven itself to outperform the average.

keppler

Another of our data sources is the breakdown of these funds. If they outperform the market long term, it makes sense to understand where they are diversified.

Here is the latest major market fund allocation breakdown.

state-street-data

State Street Global Advantage Emerging Market Fund reveiw.

state-street-data

One simple way for non Americans to diversify in global stocks is to simply invest in this fund.

state-street-data

The fund is not registered for sale to US investors but we Yanks can learn where we may want to diversify by looking at where the fund invests.

One way Americans can duplicate global diversification of this nature is with Jyske Global Asset Management. Get details from Thomas Fischer at fischer@jgam.com . Non Americans should write Rene Mathys mathys@jbpb.dk

Another simple approach to finding global value is the MSCI EAFE Value ETF (symbol EFV).

This fund seeks investment results that correspond to the MSCI EAFE® Value Index and invests at least 90% of its assets in the securities of the index or in depositary receipts representing securities in the index.

The MSCI EAFE® Value Index  is composed of about 50% of the free float-adjusted market capitalization of the MSCI EAFE® Index… half that are classified by MSCI as most representing the value style.

Morgan Stanley Capital International Inc. (MSCI) is a leading provider of global indices and benchmark related products and services to investors worldwide.

The MSCI EAFE Index covers Europe, Australasia, Far East and is market capitalization index that measures the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

Investing in EAFE is like investing in a spread of shares that compass all 22 indices.

MSCI then refines the indices into value and growth that cover the full range of MSCI Developed, Emerging and All Country Indices across large, mid and small cap size segmentations. They also cover large and mid cap size segments for the MSCI Frontier Markets Indices. The indices are constructed using an approach that provides a precise definition of style using eight historical and forward-looking fundamental data points for every security. Each security is placed into either the Value or Growth Indices, or may be partially allocated to both (with no double counting). The objective of this index design is to divide constituents of an underlying MSCI Equity Index into respective value and growth indices, each targeting 50% of the free float adjusted market capitalization of the underlying market index.

Investing in the MSCI EAFE® Value Index is like investing in half of the shares in these 22 indices that are considered good value by MSCI.

This chart from finance.yahoo.com shows how the fund has fared since inception. Value investments generally make most of their profit during recoveries and this chart confirms this fact.

EFV chart

Keppler’s value analysis suggests that shares are still historically undervalued and that over the next three years would rise 19.2% to stay in line with long term patterns.

keppler

However a global bond fund may have been a better way to store wealth in the last three decades.

Multi Currency portfolio subscribers can see a full report why bonds have been better for the past 3o years at their password protected site here.

See how to get a multi currency portfolio password here.

Gary

Join us at our February International Investment & Business Seminar where we focus on how to find investing value… buy better bonds and “Get Smarter” in investing and business.


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