Stock Markets & Time


Is it time for the US stock market to fall? 

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Albert Einstein on time and money:

Albert Einstein helped humanity understand that time is relative.  He also had something to say about time and money when he said this about compound interest.

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

Einstein had a good point about compound interest but never considered zero and negative interest.  Compound returns over 30 or 40 years at zero return are still zero!  This fact has left us in stock value territory that is really unknown.

So let’s ask the question again…. Is it time for the US stock market to fall?

Maybe the market will rise.  Maybe it will fall.  No one knows, so let’s take time and look at stock market timing, the value of time in the market and most important, the value of time in our lives.

The Wall Street Journal article, “This Market Can’t Go on Much Longer” (1) seems to think the market is headed for a crash.

The article says:  The stock market has surged 20% since the election as much has gone right and little wrong. That hardly ever lasts.  The stock market has surged 20% since the election, making it expensive by almost any measure. The drivers of the rally are well-known: Strong corporate earnings, solid global growth, central bank stimulus and a relatively stable global geopolitical environment. These positives have made the market one of the calmest of all time, which has given investors more confidence and further boosted stocks.

Can those factors continue? In most cases-no, though the timing and size of the next shift is impossible to know. But these trends are interconnected and have reinforced one another on the way up. A crack in one could have an outsize impact on the rest. U.S. stocks have been the best performing asset class in the world for three years running, returning an average of nearly 16% annually.  This year is on track to top 20%.  To get here, lot of things have gone right and almost nothing wrong.  That hardly ever lasts.

This means it is time to get out of the US stock market.  Right?

Wait a minute…

Another Wall Street Journal article one day later, “Are Stock Prices Dangerously High?” (2), tells a different tale.

This article says:  It Depends How You Look at It.  These three P/E measurements are alarming. So why hasn’t it mattered?

Hot-Stock Rally Tests the Patience of a Choosy Lot: Value Investors.  Value funds around the globe are on track to post their worst performance since before the financial crisis.  U.S. stocks have set record after record this year, pleasing investors who might have expected a post election slump.  However, have prices soared to levels that are too risky?

Today, the P/E for the stocks in the S&P 500 index is about 24, meaning investors pay $24 for every $1 in corporate earnings. That’s quite high compared with the historical average of about 15 or 16, but not so high compared with some periods of crisis in the past—more than 40 around the dot-com bubble and above 100 after the financial crisis broke. To return to average, prices would have to tumble or earnings would have to skyrocket.

Some experts note, however, that it isn’t unusual, or particularly risky,  for the P/E to be somewhat higher than average when interest rates and inflation are unusually low.

So is the market going to fall or not?

We are not asking the right question…

These Golden Rules of Investing show us why:

#1: There is always something we do not know.   The only certainty is that periods of high performance are followed by periods of low performance and vice versa.

#2:  Invest in inexpensive equities that are paying a reasonable return.  Expect 7% to 10% annual return in the stock market as a function of global nominal GDP growth and long term earnings’ growth plus risk premium.  To attain higher growth, you must either increase risk or trust luck.

#3: The short term process of buying and selling takes too much time.  This short term process leaves too little time to analyze and forecast.  Markets move short term based on emotion and are unpredictable.  Markets move long term based on value and are predictable.  Place a higher priority on numbers rather than good stories.  Make your routine repeatable, so good shares can be found again and again.

We have 24 hours a day, a limited commodity that erodes minute by minute.  How will we spend it?  Time is potentially the most important factor in our life, so it makes sense to a repeatable routine that finds good shares again and again and takes as little time as possible.

Value funds around the globe are on track to post their worst performance since before the financial crisis.

The only certainty is that periods of high performance are followed by periods of low performance and vice versa.

We have seen a period of high performance in the US market.  We have seen a period of low performance in good value stock markets.  It’s time to save time and invest in country ETFs of good value markets.

Gary

(1) www.wsj.com: This market can’t go on much longer

(2) www.wsj.com: Are stock prices dangerously high. It depends on how you look at it

Increase Safety – Earn More

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The Purposeful investing Course (Pi) is NOT about fast moving, speculative stock and currency trading.  Pi is about slow, worry free, good value investing from finding good value. 

There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We should invest to make the world a better place.

We should not invest for fun, excitement or to get rich quick.  Let’s put our time to better use.

This is why the core Pi model portfolio (that forms the bulk of my own equity portfolio) consists of 19 shares and this position has not changed in over two years.  During these two years we have been steadily accumulating the same 19 shares and have not traded once.

This good value portfolio is based entirely on good value financial information and math.

The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets developed using my 50 years of investing experience and study of the mathematical market analysis of Michael Keppler and his company, Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers, such as State Street Global Advisers, use his analysis to manage over $2.5 billion of funds.

The Pifolio analysis begins with Keppler who continually researches international major stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  He compares each major stock market’s history.

Fwd: keppler

Michael Kepler CEO Keppler Asset Management.

Michael is a brilliant mathematician.  We have tracked his analysis for over 20 years.   He continually researches international major stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  He compares each stock market’s history.  From this, he develops his Good Value Stock Market Strategy and rates each market as a Buy, Neutral or Sell market.  His analysis is rational, mathematical and does not cause worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each BUY market.

This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any stock in that country is an attractive investment, so you do not have to spend hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio.

70% is diversified into Keppler’s good value (BUY rated) developed markets: Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

The Pifolio consists of iShares ETFs that invested in each of the MSCI indicies of these BUY markets.

For example, the iShares MSCI Australia (symbol EWA) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Australia Index which is composed mainly of large cap and small cap stocks traded primarily on the Australian Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Australia.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

The Pifolio is the main portfolio we study in our Purposeful investing Course.  Then we add spice with leveraged speculations that offer additional profit potential often using leverage.

My fifty years of global investing experience helps take advantage of numerous long term cycles that are part of the universal math that affects all investments.

For example in the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.

The two conditions are in place again!  There are currently the ten good value non US developed markets and none good value emerging markets mentioned above.

Pi shows how to easily create a diversified, worry free portfolio that includes each or all of these countries with Country Index ETFs.

The current strength of the US dollar is a second remarkable similarity to 30 years ago.  Three decades past, in 1985 the dollar rose along with Wall Street.  Profits came quickly over three years.  Then in 1988 the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

Guarantee

Enroll in Pi.   I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free purposeful investing.  If you are not totally happy, simply let me know anytime within 60 days.

#2:  I guarantee to cancel your subscription and refund your subscription fee in full, no questions asked.

  Subscribe to the Pi for $197.

Gary


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