Long Term Investing Versus Short Term Investing


There are many arguments for long term investing versus short term investing.  There is no question about where to get the  best results.  Long term investing increases return and reduces risk.  Yet there are times when short term investments make sense.  There are really special times when one can find short term AND long term opportunity in the same investment, like right now.

History supports the idea that the best way to make a lot of money is in short term deals.  Let me share why we should mostly ignore this fact.

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The 88 year study above is from Keppler Asset Management’s “Risk & Return Characteristics | Selected Asset Classes Key Considerations for Asset Allocation Decisions” (1).   This shows that US large stocks held for just one year gave the highest return 162.8%.  They also gave the highest long term return over 88 years of 12.2%.  The reason short term investing is not the best idea is because these short term investments also have (by a factor of about four) the far greater risk of loss.   Invest for just a year and you make a lot or lose a lot.

There are times when a hedge can create short term and long term opportunity… like now.

Right now the best long term investment, with the least risk, is in developed European markets.  Two of the advisers I use agree on this.   Keppler Asset Management has ten good value markets, six of the good value equity markets are in Europe.   The good value developed markets are Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom — at equal weights.

ENR Asset Management wrote in its February 2015 Market Outlook Europe remains our prime destination this year for stocks. With the ECB backstopping the market, we think investors have a better risk-adjusted back- drop compared to the Unite Assuming the ECB is successful in calming regional markets and the Greek credit crisis can be resolved or delayed, investors should eventually swap from negative-yielding assets into blue- chip equities. The dividend differential between bonds and stocks across Europe has grown hugely divergent over the past several weeks as more government bond markets break below positive interest rate levels. German blue-chip equities as measured by the DAX yield 2.5% compared to a negative interest rate of 0.07% for four-year German bunds. Stocks might be boosted twice; a weaker EUR, which boosts earnings for multinationals and the rising hunt for yield. Also, the ECB’s firepower should not be underestimated as it seeks to grow risk assets by compelling investors  to abandon negative-yielding securities which in our view are extremely overpriced.

The table below shows how the Developed Markets Top Value Model Portfolio compares to the MSCI World Index, the Keppler Asset Management (KAM) Equally-Weighted World Index, the MSCI Europe Index and the MSCI US Index at the end of 2014, based on selected variables (current numbers for book value; 12-month trailing numbers for the other variables – no forecasts).  In addition, it shows the MSCI World Index at its All-Time High Valuation at the end of the last Millennium and its All-Time Low Valuation at the end of 1974.

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European shares (the MSCI Index) are selling at 1.76 times book value and a PE ratio of 16.8.  The US MSCI Index is at a much higher 2.82 times book and a PE ratio of 19.2.
Based on this thinking, good value Emerging Market shares offer even better value.  The table below shows how the Emerging Markets Top Value Model Portfolio compares to the MSCI Emerging Markets Index and to the MSCI Developed Markets Index at the end of 2014, based on selected assets and earnings valuation measures.  According to the MSCI emerging markets index is selling for 1.52 times book and a PE ratio of 12.3.

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We can see value in these numbers:

Emerging Index  1.52 times book and a PE ratio of 12.3.   The good value emerging index is 1.22 times book and a PE of 11.0.

European Index 1.76 times book value and a PE ratio of 16.8. The good value developed markets sell at 1.31 of book at a 16.7 PE ratio.

US Index 2.82 times book and a PE ratio of 19.2.

Long term our best chance of the highest return is in a weighted index of emerging market shares.  However, short term emerging market shares are likely to fall even more.  One way to hedge this fact is to invest long term in good value emerging markets and for the short term sell emerging markets.

ENR Asset Management wrote in its February 2015 Market Outlook:  Asia and China, a strong American dollar, a possible collapse of the Russian economy and a more hawkish Fed later this year imply serious volatility lies ahead for this asset class.

Why an EM dislocation or bear market seems imminent:

• Emerging market currencies are still overvalued;

• A soaring U.S. dollar makes financing and refinancing new and existing debt more expensive;

• Trade balances are mostly deteriorating, not improving;

• Higher U.S. interest rates historically trigger EM credit and currency shocks;

• Commodities in a four-year bear market since peaking in May 2011;

• China in the midst of a credit bubble, mostly tied to real estate;

Before making a recommendation on how to trade this theme, let’s be crystal clear about something: this is not a long-term investment. We’re setting up a trade. If we’re right, emerging markets plunge this year and we earn a quick profit. We’ll also maintain a 25% stop-loss on our entry price just in case we’re wrong or too early. And most importantly this recommendation is ONLY for aggressive-risk investors.

The ProShares UltraShort Emerging Markets Fund (NYSE-EEV) invests in the MSCI Emerging Markets Index using two times leverage against the benchmark.  This means the ETF will perform twice in  excess of the benchmark. If the index declines 35% in a bear market, EEV should rise 70%. If the index plunges 50%, EEV should double. The top five countries in the ProShares UltraShort Emerging Markets Fund represent 66% of the ETF with China, South Korea, Taiwan, Brazil and South Africa in the top slot.

BUY the ProShares UltraShort Emerging Markets Fund at market in New York and place a 25% stop-loss on your entry price. Only aggressive-risk investors should purchase this Fund. Limit the position to no more than 3% of an aggressive portfolio.

The chart below from www.finance.yahoo.com below shows how this ETF is a top performer in times when markets crash, but a sure loser in good times.

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If ENR’s analysis is correct, there may be some good short term profit by speculating with this ETF.

This can also create an excellent hedge for value investors who are investing in the Keppler ranked good value emerging markets.
A portfolio of non US shares might look something like this:

75% Good Value Developed Markets.
22% Good Value Emerging Markets
3%  ProShares UltraShort Emerging Markets ETF (EEV)

Learn more at ENR’s website or  contact Thomas Fischer  at Thomas@enrasset.com for more details.

History shows us that periods of good performance in stock markets are followed by periods of poor performance.   The reverse is true so periods of poor performance are good times to accumulate shares.

The chart below comparing the MSCI emerging market index with the S&P 500 shows that emerging markets have had their period of incredible performance compared to the US market.  This index has risen almost twice as much as the S&P in the past decade.

emerging markets

Emerging markets (especially good value markets) offer excellent long term potential, but a hedge with  ProShares UltraShort Emerging Markets ETF  (EEV) greatly reduces risk.

Gary

The Ultimate Investing Secret

The ultimate investing secret is the simple fact that investment opportunities come and go in cycles.  

Because we have been watching the trends for decades, we spot many distortions  we saw decades ago as they create repeat opportunities.  For example, our 1986 report “The Silver Dip” showed readers how to turn $250 into over $45,000 in a year.   When we spotted the same repeat distortion in silver’s price in 2015, we issued our report “Silver Dip 2015”.   Those who acted on the report made as much as 200% in 2016.

There is another phenomenal distortion that has been building for a number of years.   Here is how I (and you can as well) am cashing in on this trend.

“If I Live Long Enough, I’ll really cash in next time”.    I made this promise to myself in the 1980s.   A remarkable set of economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  I invested as much as I could handle then as the profits rolled in for about 17 years.

Then the cycle ended.  Warren Buffet 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!

Now I see those circumstances headed our way again.

The Dow Jones Industrial recently soared past 20,000 and reached an all time high.   So why aren’t average investors all rich?   There are several answers.  First, even though the Dow has peaked, for the last 17 years the US stock market has been in a bear trend.  You’ll see why in a moment.  Another reason why the investors have not done so well is because of currency loss.

One final reason why profits have not been so good.  Someone, probably someone you trust, has been stealing from you.

One of the biggest obstacles in profiting from the upcoming circumstances has been and remains the financial system.  The reality is that banks and brokers have been structuring investments that are sure to lose.  They sell you on these investments and then another division of the very same bank (or broker) that recommended the investment, bets against you.   The bank knows that the investment is toxic.  To add insult to injury, many of these same institutions cheat you on the way in and the way out (when you buy and sell a share) of the bad investment.  Most brokers and bankers are interested in your money making them rich, not in helping increase your wealth.

Three Patterns Create 50% profits.

Despite the predators on Wall Street who are waiting to take big gouges out of your savings and wealth, equities are still the best place to invest for the long term.  This chart from the 24 page Keppler Asset Management Asset Allocation Review shows that over the past 80+ years equities have dramatically outperformed other types of investments.

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Good investments require a relentless search for value.   Your investments have to be good enough to reap an outstanding profit even after the parasites siphon off their part.

To take advantage of the once every 17 year circumstances, I chose to track Keppler Asset Management who continually researches developed and emerging markets globally.  Keppler is one of the best market statisticians in the world and numerous very large fund managers use his analysis to manage funds such as State Street Global Advisors.  Keppler compares the value of each share in each market based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  From this study of monumental amounts of data Keppler develops a Good Value Stock Market Strategies.  The analysis is based on long term, rational, mathematical facts and does not worry about short term ups and downs.

From Keppler I learned that market timing is not the way to get these high profits.  Another graphic from the Keppler Asset Allocation Review explains why.

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A dollar invested 88 years ago in Treasury bills rose to $20.58.  The same dollar invested in U.S. stocks over the 88 years grew to be was worth $4,677, UNLESS you missed the best 43 months.  Literally all of the the Dow’s growth in 1,056 months came in 43 of those months.   Your odds have been one in 24, better than roulette perhaps, but not good enough.  Plus even after these odds, the predators are going to take their cut.  You have to ask, “Am I that good at timing?”

The better alternative to timing is to invest in long term indexing based on value.  Long term strategic investing in market indices reduces the amount of trading.  Low trading activity is important because trades are where investors are most vulnerable to predatory tactics.

A part of the long term strategic trading is to invest in low fee diversified Country Index ETFs.  This simplifies the search for value because it focuses research into lumps.

A comparison of US versus German stock market indexes gives an example of lump research and you can create good value, low cost, diversified portfolios that offer maximum potential for profit as they reduce risk.

Keppler’s research shows that Germany’s stock market is a good value market.  Keppler lumps all the shares (or at least 85% of the shares) into the calculations.  There is no attempt to select any one specific share.  Keppler’s research shows that the US stock market index (a lump of about 85% of all the US shares) is now a poor value.

Germany has the world’s fourth largest economy.  The country is the third largest exporter in the world and has recorded some of the highest trade surplus in the world making it the biggest capital exporter globally.  Yet German shares have been overlooked.  German share prices are good value.

For example, recently the German Stock Market had a relative price to book value ratio of  .78,  a relative price earnings ratio of  0.87 and a relative dividend yield of 1.12.  The US Stock Market has a much higher relative price to book value ratio of 1.29, a relative price earnings ratio of 1.07 and a relative dividend yield of 0.81.  German shares cost much less, compared to the values and earnings.  German shares pay much higher dividends as well.

Keppler predicts that the US Stock Market (which is ranked as a sell market by Keppler) will have an annual index gain for the next five years of  3.1% and a total return (with dividends) or a total five year return of 21.7%.  The same calculations for the German Market predicts an average annual index gain over the next five years of 7.5% and a total return (with dividends) or a total five year return of 47.3%.

Which would you rather buy,  a 47.3% return sold for 78 cents on the dollar or a 21.7% return sold for $1.29 on the dollar?

You can forget about any specific share in the US or Germany and invest into an index (in this case the Morgan Stanley Capital Index) which represents about 85% of all the shares traded on the exchange.

You can invest in ETFs that passively invest in all the shares of the index in stock markets that offer good value.  iShares investment company for example has  an ETF that invests in 85% of the shares traded on Wall Street.

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This ETF is called the iShares USA (symbol EUSA) and in this example rose from $22.91 to $43.40 or 89% in the past five years.

iShares also offers an ETF that invests in about 85% of the stocks listed on the German Stock Exchange (Symbol EWG).  EWG rose  from $19.70 to $28.13  or 42% in the past five years.

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Keppler’s lump research shows that Germany is a good value market.   One simple (even very small) investment in iShares Germany MSCI Index ETF gives you a portfolio  of almost all the shares traded on Germany’s largest stock exchange in Frankfurt.  This ETF is a share traded on the New York Stock Exchange.  The ETF invests in 85% of the shares in Germany.  This ETF is a passive fund that does not try to outperform the growth of the German Stock Market.  The managers simply track the investment results of the MSCI Germany Index.  The MSCI Germany Index is designed to measure the performance of the large and mid cap segments of the German Index which is composed of the stocks of 54 different German companies and covers about 85% of all the German equities.  Germany’s ten largest companies compose about 60% of the index.  These ten companies are:  BAYER (Health Care) composes 9.91% of the index – SIEMENS (Industrials) 7.89% – DAIMLER (Consumer Discretionary) 7.04% – BASF (Materials)  6.81% – ALLIANZ (Financials) 6.65% – SAP STAMM (Info Tech) 5.69% – DEUTSCHE TELEKOM (Telecom Srvcs) 4.46% – DEUTSCHE BANK NAMEN  (Financials) 3.66%  – VOLKSWAGEN VORZUG (Consumer Discretionary) 3.18% – BMW STAM (Consumer Discretionary)  3.15%.

You lump your research.  You lump your investment.  This makes it easy to capture the powerful economic circumstances that are unfolding now.

Just investing in Germany is not enough.  There are currently ten good value developed markets, Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom.   Plus there are 11 good value emerging markets.  With even a couple of thousand dollars you can easily create a diversified portfolio in each or all of these countries with Country Index ETFs.

Investing in many stock markets through ETFs gives you opportunity in the second pattern of the falling US dollar.  Preserving the purchasing power of your savings and wealth requires currency diversification.

The strength of the US dollar over recent years is a second remarkable similarity to 30 years ago.   In 1980, the dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern has been growing, is seriously overdue and could create up to 50% extra profit if you start using strong dollars to accumulate good value stock market ETFs in other currencies.

For example because of fears about the euro, EWG, the German ETF dropped 9 percent in 12 months.  These declines are created by currency concerns.  When the euro regains strength, the shares have the potential to appreciate even more.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I created a short, but powerful report “Three Currency Patterns For 50% Profits or More.”  This report shows how to earn an extra 50% from currency shifts with even small investments.  I kept the report short and simple, but includes links to 153 pages of Keppler Asset Stock Market and Asset Allocation Analysis so you can keep this as simple or as complex as you desire.

The report shows 22 good value investments and a really powerful tactic to use that allows you to accumulate these bargains now even in very small amounts (even $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

Research shows that most people worry about having enough money if they live long enough.   I never thought of that.   I just wanted to live long enough to see the remarkable economic opportunity that started in 1980 come again so I could hot the jackpot.  This powerful profit wave has begun.  I have made the investment myself  suggest you investigate this in my report “Three Currency Patterns For 50% Profits or More.”

Order the report here $29.95

My Guarantee

Order now and I’ll email the online report “Three Currency Patterns For 50% Profits or More” in a .pdf  file right away. 

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 within 60 days and I’ll refund your subscription fee in full, no questions asked.

You can keep “Three Currency Patterns for 50% Profits or More”  as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Order the report here $29.95

I look forward to the next 17 years and sharing how to have more than enough money for the rest of your life.

Gary

 


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