89% of all Investments Suffered


For the past 50 years I have been investing internationally and have watched six bear markets decimate millions of investors.

I’ve been asking myself about the 7th… bear market.  “How bad it will be?”

Yesterday, NASDAQ  entered bear territory (down 20% from high).  The Russell 2000 index, which tracks shares of smaller companies and seven of the S&P 500’s 11 industrial sectors are also now in a bear mode.

This should not be a surprise…  nothing keeps rising forever.

The question now is “how and where” to invest?  This answer is not so simple.

dow

The Dow Jones Industrial Index was down 16% from its October 2018 high.

The Dow Jones Industrial Index is also near a 20% correction.  That index has dropped 16.6% from its October high as of yesterday.

So the bear appears to be attacking every aspect of the US stock market.  So the “when” for  US shares may not be the best any time in the immediate future.

The problem of “where” is worse!

Research by Deutsche Bank recently indicated that 89% of all investment classes, in dollar terms, are suffering a loss in 2018.

2018 has not been a beauty for investors, even beyond the stock market.  That 89% figure makes this year the worst ever, for investments overall, since 1901.

A quick review of the previous six bear markets might help us understand what to do now.

The normal definition of a bear market is one where stock prices fall for a sustained period, dropping at least 20 percent from their peak.  Here are the six bears I have experienced previously and some of their implications.

November 1968 to May 1970
Duration: 18 months
S&P 500 loss: 36.1 percent

Rapid growth pushed inflation up into the 6-percent-a year range.  The President of the USA was unstable (Richard Nixon) and there was a groundswell change in attitudes toward the government dominated by public resistance to the growing U.S. involvement in Vietnam.

That first bear market I lived through was really a bull and a bear for me.  In May 1968, I moved to Hong Kong to sell US mutual funds to the Chinese.  That was a really bad short term move, getting investors into US stocks right before the bear.  My business nearly went broke!

The good news was that this was the beginning of  one of the greatest bull markets ever… in Hong Kong.  The Hang Seng  market index rose from 100 to over 18,000.  I switched focus from selling US shares to the Chinese to writing about Hong Kong shares to Americans.   My career was born.

January 1973 to October 1974
Loss: 48.0 percent
Duration: 21 months
S&P 500 loss: 48.0 percent

War in the Middle East (Yom Kippur War), volatile oil prices and the risk of a presidential impeachment all helped create a recession that caused a huge decline in the market.

This bear created an entire demographic cohort in America.  Boomers like me (born in mid 1940s) were promised the world and we got it.  Opportunity was rich in the late 1960s.  Boomers like my sister (born in mid 1950s) were promised the world, but the good times were taken away.  This segment of the population entered a job market that was bereft of opportunity.  The letdown changed how they lived and thought and they become known as Jonesers… “just Jonesn along”, with a yearning or craving for a fulfillment of their huge expectations

November 1980 to August 1982
Duration: 21 months
S&P 500 loss: 27.8 percent

Gosh I loved that bear.  Inflation was running double digits and the Federal Reserve under Volker raised the federal funds rate from 11.2% to 20% by June of 1981. This helped cause the 1980-1982 recession and a national unemployment rate of over 10%. The good news was that I was being paid 17% on my investments in major banks.

The bad news was that the borrowers who had to pay those high interest rates were seriously messed up and this stalled the economy and stock market.

August 1987 to December 1987
Duration: 3 months
Loss: 33.5 percent

This bear was created more by technology than economics. Computerized “program trading” was in its infancy and helped bring on the Black Monday crash of Oct. 19 when the Dow fell 22.6 percent.  This plunge, not seen since the Panic of 1914  added to fears of of a US dollar devaluation and led a short term bear.

March 2000 to October 2002
S&P 500 loss: 49.1 percent
Duration: 30 months

Technology again created this mess, but in a different way.  The shift to an internet world created a dot-com bubble that removed investors from their senses.  Stock prices on new Internet companies that had hardly any profits led to senseless market values. Often companies with no real history or profit were worth more than  established “old-economy” corporate giants.

October 2007 to March 2009
S&P 500 loss: 56.4 percent
Duration: 17 months

Bubbles that create a departure from price to profit common sense are usually the root of bear markets.  The bubble that created this bear was the housing bubble.  When house prices plunged and rising mortgage delinquency rates ruined both the stock and credit market.

I started gobbling up houses and I still like these investments (for me – but real estate is a personal thing) even better than shares.

Will this seventh bear in my career be a big, bad one?

Thee six bear stock markets I have lived through provide plenty of  lessons.

One lesson to heed now is about the risk when the share prices of new tech companies become totally unhinged from earnings and profit.  For example in 2017,  Tesla’s stock market cap value surpassed those of Ford and GM, making it the leading automobile company in terms of stock market price.  Really?

Almost every condition that led to previous recessions exists now.  There is an unpopular war in the Middle East, continual and rising political tension, Volatile oil prices, an overvalued US dollar.  Statistics do not show inflation yet, but any shopper knows that that’s an illusion and the reality of a tight employee market, embargoes and rising prices will soon set in.

All that’s missing are higher interest rates and these have been creeping upwards.

Most of all there has been soaring stock prices and exuberant speculation in “what’s new and in fashion”.

There are plenty of reasons why this bear market could be sustained and serious, but no one knows.   This could be a one month “Bear of 2018” or there might be a big bad bear that lasts into 2019 and perhaps beyond.

What we do know is that bear markets force investors to rethink their ideas about value.

The Time for Value is Near

Value investing has become a growing bargain during the dismal 2018.

ENR chart

It’s no secret that value-based equities in the United States and overseas have lagged their growth equities since 2009.

It’s unusual for value to lag growth this long (see above chart).

Value has badly trailed growth in this cycle for the same reason tech shares bubbled in 2000 and house prices bubbled in 2007.

The thundering herd had been caught in the mania of high tech and has ignored price to profit connections.

The recent declines in tech shares that are feeding this bear suggest that we’ll soon see a return to value.

In the short term there may be no good place to hide.   Low interest rates make cash investments pitiful and creates risk for investments in bonds.

Longer term, as with all bear markets I have watched… some really great equity bargains will appear.

bull bear chart

The chart above shows the US bull and bear stock markets since the 1920.

Regardless of what happens in the following months, history is clear… if we simply get in the market… hold on and do not bail out during bear markets… we come out ahead.

Personally I have been accumulating country ETFs that invest in good value markets and won’t change a thing, except invest in even more.  You can see why I maintain this simple, easy, low stress strategy below.

Only time will tell how deep, long or serious the new US stock market bear will be so don’t be stressed!  Enjoy the weekend and holidays and remember Warren Buffet’s take on stock market investing.

Buffett said: “To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life.  When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household.  When hamburgers go up in price, we weep.  For most people, it’s the same with everything in life they will be buying — except stocks.  When stocks go down and you can get more for your money, people don’t like them anymore.”

This is a holiday bear market that could bring some precious gifts of profit to those of us who are value investors.

Gary

The Only 3 Reasons to Invest

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The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

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 invest to make our world a better place.

The goal of investing should be to stabilize our security, bring feelings of comfort and elimination of stress!

We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.

This is why my core stock portfolio consists of 19 shares and this position has hardly changed in three years.  During this time we have been steadily accumulating the same 19 shares and have traded only three times.

A model portfolio that dates back to 1969 has dramatically outperformed almost every stock market in the world.

keppler

A hundred US dollars invested in that portfolio in 1969 is now worth $44833 compared to $100 invested in an equity weighted world index being worth $11,548.

This portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.

This portfolio more or less matched the S&P 500 until May 2018.  Then a stronger US dollar made the portfolio look like it was falling behind.   This currency illusion creates a special opportunity we’ll view in a moment.

This portfolio above is based on stock price to value analysis built around 91 years of stock market data.

The value analysis is used to create a portfolio of MSCI Country Benchmark Index ETFs that cover  stock markets that are undervalued.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage over $2.5 billion of funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) and most of his funds registered for the European Union, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael about 25 years ago, so I am one of the few Americans who receive this data and you will not find his information readily available in the US.

In a moment you’ll see how to remedy this fact.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 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.  Then Keppler takes market’s history into account.

Fwd: keppler

Michael Kepler CEO Keppler Asset Management.

Michael’s 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 good value (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 one stock in that country is an attractive investment.  This eliminates the need for 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 I personally held at the beginning of 2020.   There have been no changes since.

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

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

iShares Country ETFs make it easy to invest in each of the MSCI indicies of the good value BUY markets.

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund is at all times invested at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

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

There is an iShares country ETF for every market in our Pifolio.

This year I celebrated my 52nd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

How you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (PI).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past three years, two more reports on investing (described below) and an online Value Investing Seminar right away. 

#1:  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, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar 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.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.This year I celebrated my 51st anniversary of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special seminar session looks at how to spot value from cycles.  Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

keppler

The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Save $102 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years,  right away. 

#1:  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, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the reports 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.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Your subscription will be charged $99 a year from now, but you can cancel at any time.

Gary