An Important Golden Rule of Investing

Golden Rule #13: Periods of high returns are followed by a period of low returns and vice versa.

This year, my 50th in business, I am reviewing 50 Golden rules of investing.

dow chart

You can see how this rule has worked in the US market for the past 100 plus years.

Rule number 13 is important because so many people ignore it.  In fact most investors act in exactly the wrong way, buying at the top in greed and selling at the bottom in fear.

So does it not make sense to look at markets like Hong Kong instead of the USA?  Look at their performance over the past two years.

The US market has been in a period of high performance.

S&P500 Share cart

The Hong Kong market has been in a period of low performance.

Hengseng share chart

Value investors know that Rule #13 always works we never know for sure when the good period ends and bad starts or vice versa.  In other words we need ore than just a bad or good performance.  In this case however Hong Kong shares offers a lot of extra value compared to shares on the US market as well.

A look at the good value versus the poor value market analysis of Keppler Asset Management shows that Hong Kong shares are a much better value in terms of price to book, P/E ratios and dividend yields compared to US shares.

value investments

This is a scenario that should alert us.  One market has had a period of low performance and is offering good value. The other market has had high performance and is offering poor value.

Check and see if holding the iShares MSCI ETF (symbol EWH) makes sense for your circumstances now.






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