The Power in Long Term


A Purposeful Investing Course subscriber sent in this question. 

Please when you have questions, ask away!  That’s why I am here… to serve you.

Good Morning Gary.  I am a PI subscriber and have been doing my homework as I want to learn to invest myself by using the guidance you provide in PI.  In looking at your portfolio this year of 17 country ETFs plus silver and platinum and also looking at Kepplers 12 emerging market ETFs, I see that you include some of those ETFs but certainly not all.  Am I misreading this?  Thanks for any input.

This subscriber is correct that not all of the Keppler good value markets are in the Pifolio, plus one market that is neutral value (Canada) is included.

There are a couple of reasons for this.
First, I wanted to set up the Pifolio and leave it for 5 years to see the undisturbed long term results.
My thinking behind this decision is nicely summed up in a recent article “Value Investing Is A Long-Term Strategy And Should Be Judged Accordingly” (1)
Here’s some excerpt from that article:

When investing in unpopular stocks, which is where value often comes from, it often requires waiting until they become popular again before you reap your rewards through rising prices.

Almost by definition, value investing rarely performs well in the short run. This is especially true when you are in a strong bull market like we’ve been in since March 2009. Most companies as represented by the S&P 500 are currently trading at fundamental multiples that are significantly above historical norms. Below is a 20-year historical earnings and price correlated FAST Graph of the S&P 500. There are two valuation reference lines on the graph.

The dark blue valuation reference line represents a normal P/E ratio of 18.12. The orange valuation reference line represents a fair value P/E ratio of 15. As you can see, for most of that time frame market prices traded between those valuation references. However, note the two outliers calendar year 2000 to the beginning of 2002 and calendar years 2017 to current. Clearly, current valuations are high. Not necessarily crazily high as some people believe, but undoubtedly higher than historical norms nevertheless.

share charts

However, I have a second portfolio because when we started the MOTIF Pifolio, I also had our banker invest exactly the same amounts in my personal account at exactly the same time as we executed the MOTIF Pifolio.   I wanted to test whether MOTIF, which has very low trading fees, was adding hidden costs at purchase.  They were not.
So I have an account at my bank that had an identical portfolio at inception appx. four years ago.
I have added some of the missing markets in my personal acct.
Next January, after 5 years of the Pifolio I plan to examine the differences between buy and update, as markets rise and fall in value, versus a buy and hold for five years approach.
Keep in mind most of the markets that were (or were not) good value, have changed very little.  France for example shifted from good value to neutral.  Each investor can make up their mind abouth whether to sell in a shift of this sort.  I have not sold the France ETF in my accoun.
The Pi system is much more  a “buy and hold” than “trade a lot” system.
To date there has not been much difference in performance between my personal portfolio and the Pifolio.
Here is a review of the Keppler good value markets and the ETFs within the Pifolio and departures in the Pifolio.
The good value developed markets are: Australia, Austria, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom
Canada.  Canada is a neutral value market, but has near good value values.  I hold iShares MSCI Canada Index ETF  in my personal portfolio but it is not in the Pifolio.
France. The iShares France Index ETF was good value when Pi began, but is still in the Pifolio even though it has dropped to neutral value.

Germany.  The iShares MSCI Germany Index ETF is in both portfolios.

Norway.  The Norway Global X MSCI Norway is in both portfolios and is overweighted.  See why here.
The good value emerging markets are:  Brazil, Chile, China, Colombia, the Czech Republic, Korea,Malaysia, Mexico, Poland, Russia,Taiwan and Turkey 
China.  We are overweighted in China with the iShares FTSE/Xinhua China 25 Index Fund (a Keppler Emerging Market)  because I treat China as a developed market).
The Czech Republic, Poland and Russia are not included as they were not good value or there was no ETF that represented the market.

Gary

Prophet Words for Profit in 2020

Here’s ten most important words (and numbers) for the 2020 decade…  MSCI World Index All-Time High Valuation December 31, 1999.

Keep these word and numbers in mind when thinking about the stock market this year.

Here is the all time high valuation for this index.   Price to book 4.23.  Price Earnings Ratio 35.7. Average dividend yield 1.30%. 

Those were the all time high valuations for the Morgan Stanley Capital World Index in December 1999, just before the dot.com bubble burst.

Here is a chart of the Dow Jones Index for the past three decades.  You can see that bubble pop just before the beginning of the 2000 decade.

microtrends.com

Let’s compare some valuations just before the US stock markets began to crash

                                                                                 Price to Book       P/E       Average Dividend

The All World MSCI World Growth Shares           5.22                28.4                 1.28%

MSCI  US Index                                                               3.65                 23.1                  1.83%

MSCI Word Index                                                           2.57                 20.0                  2.33%

MSCI World Index All-Time High                            4.23                  35.7                  1.30%

MSCI USA Index                                                            3.65                  23.1                   1.83%

These valuations create the important investing question. “Will the 2020 decade be more like the 2000s decade or the 2010 decade?”

The current bear market suggests that we are back in a 2000 scenario, which mans that the greatest opportunity is ahead.

“How close can the USA Index come to the all time high watermark before there is a correction?”

For the past four years, my strategy, to protect against the next stock market crash and yet gain from rising share prices is to invest in an equally weighted  of the value based portfolio of country ETFs we invest in and track in our Purposeful Investing Course is formulated.

The valuation of the top value portfolio we use as the basis of our portfolio is now Price-to-book  below 1.4, P/E Ratio under 14 and average dividend yield of nearly 4%.

An equally weighted combination of  these top value markets offers the highest expectation of long-term risk-adjusted performance and the valuation of the top value portfolio is now undervalued by more than 40% compared to the MSCI World (Standard) Index, by 50% compared to the MSCI USA Index and by 62% compared to the MSCI World Growth Index.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Our Purposeful Investing Course (Pi) teaches an 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.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  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 Pi portfolio 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 2019.  Now I am updating my plan to include when it’s best to invest more.

70% is diversified into developed markets: France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

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

The ETFs provide incredible diversification for safety.  For example, the iShares MSCI  Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.

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 almost every market.

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.

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.

You also receive a 100+ 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 will celebrate my 52nd anniversary of global investing and 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.

Those five decades of experience have taught me several incredibly valuable lessons.

The first lesson is that there is always something we do not know.

The second lesson is that stock market booms and busts always eventually return to value.

Third, the only sure way to succeed is to use time not timing.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

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.

Guarantee

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

 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 in the first two months for a full no fuss full refund.

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.

Your subscription will be charged $299 a year from now, but you can cancel at any time.

Gary

(1)  Value investing is a long term strategy and should be judged accordingly