Market Timing With Value Investments


Value investing is all about not trying to do market timing.

Yet this may be a special time to invest in value shares.

With the Dow Jones Industrial Index shooting past 24,000, many investors ask, “Is this enough?”

The analysts at Pi do not think so.

The chart below shows the Keppler Asset Management’s four year projections of global stocks.  The blue bank shows the projection with the grey bands offering a plus and minus 20% high and low projection.

This study shows that each time the actual market performance (red band) fell below Keppler’s  projections, there was high performance after.

In reverse, each time the actual market performance shot above Kepler’s high estimate, there was a sharp decline.

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This study suggests that global equity markets are in a similar place to where they were in 1995 and 2005.   If this is correct, the markets still have upwards strength left.

Which stocks and which markets will rise the most?

This question is important because right now U.S. shares are experiencing the biggest divergence between cheap and expensive stocks since the aftermath of the dot-com bubble.

Market indices can be misleading because the performance of companies with rising earnings, that form a bulk of the indices, are rising faster than many other shares.

Growth companies are attracting premium prices, which normally mean they are a poor value.  Value shares that have low price to book or price/earnings ratios have dropped in price.

The shares that make up the Dow Jones Industrial might be those that under perform in the months ahead.

This is an unusual separation. In the last year, growth stocks have a 19 percentage-point over performance of value stocks.

This is the fastest divergence of growth to value equities since 1999, the last year of the dot-com bubble.

All the indicators we track at Pi suggest that markets globally will continue to rise over the next couple of years.

This surge of growth stocks could mark a dangerous top-of-the-market bubble. 

This bubble could be for US growth shares in which case top performance will switch from growth to value.

Or the drawback in US growth shares could lead a decline in the US market which is a poor value compared to good value markets.

The chart below shows the facts:

We track Keppler Asset Management’s analysis of market value.   That analysis shows that the  Morgan Stanley MSCI US Index is selling at more than double the price to book of the ten good value developed markets and at a 31% higher P/E ratio and 38% lower average dividend yield.

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The prognosis is that market timers will find now a good time to switch from the the US market to good value markets… or at least switch from US growth shares to US value shares.

Here are the good and poor value developed markets:

keppler

Learn in the Purposeful investing Course how to invest easily in good value developed and emerging markets.

Gary

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.

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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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