Fifth Key for Everlasting Wealth

by | Mar 2, 2002 | Archives

Learn how to increase capital gains, here.

Dear International Friend,

The seven keys to “Everlasting Wealth” are more energy, better health, longer life, higher income, higher capital gains, fewer lawsuits and less tax, plus most of all, more fun. Last message we looked at how Rivers of Light can enhance day to day energy health and longevity (see this link).

Today we examine the key to increasing your capital. This is especially important in an era when inflation is likely to explode. A recent message showed seven fundamental reasons why the dollar could fall and inflation rise. This makes capital gains more important than ever, especially since its also harder to achieve decent income on your investments now.

The key is to buy low and sell high. Simple to say, but how?

One way (I have been using for three decades) is the same as increasing income, spot economic distortions.

The big economic and social trend that colors every aspect of our lives and investments is the expanding global economy. Over the years this trend will equalize market values. Yet during this process some markets will be temporarily undervalued for local reasons (politics, economics, currency distortions, historical factors, image, etc.). This is one reason why I am in Ecuador. I believe it is currently a very undervalued place.

The trick is to look for good value markets. Recent messages, for example outlined that timber is an undervalued asset and recommended Plum Creek Timber as a place to invest. These messages also outlined Michael Keppler's market valuations and recommended five emerging markets that offered top value; Argentina, Korea, Czech Republic, Korea and the Philippines (see articles within the Markets section.

Does this work? Here is what a reader who followed some of these recommendations wrote last week.

“Gary, You may want to know that my investment in the Mathews Korea Fund is up 40% in the last six months and my Plum Creek Timber is up 20%.”

Looking for value in everything we own is one of the surest and most logical ways to make sure assets will grow.

Keppler's emerging market recommendations have now changed. Here is what Keppler recently wrote:

“Emerging Markets continued their recent recovery into the fourth month. Fourteen emerging markets rose, eight declined (in local currencies). The best performers were Argentina (+42.7%), Indonesia (+22.2%) and Poland (+18.8%). Egypt (-7.4%), China (-7.2%) and Turkey (-6.2%) performed worst. Among the regions, Asia fared best, with a gain of 5.1% (in US dollars), followed by Europe-Mid East Africa (EMEA), which advanced 3.8%, while Latin America declined 0.3%. There are several changes in our performance ratings this month:

#1: Due to the difficult environment Argentina is downgraded from “Buy” to “Neutral.”

#2: Egypt is upgraded from “Neutral” to “Buy”. After a decline of 66% in local currency and 75% in US dollars during the last two years, Egyptian stocks are valued at a price/book value ratio of 1.1, a price/earnings ratio of 6.2 and offer a dividend yield of 7.2%. According to our analyses, the market is undervalued by 30% compared to the S&P/IFCI Composite Index.

#3: Indonesia is upgraded from “Sell” to “Neutral”.

#4: Peru is downgraded from “Neutral” to “Sell”.

After eliminating Argentina and adding Egypt, the Top Value Model Portfolio contains Brazil, the Czech Republic, Egypt, Korea, and the Philippines at equal weights. According to our analyses these markets are currently undervalued by 30% on average, whereas the markets rated “Sell”, are overvalued by 35%. Our current ratings suggest that the markets included in the Top Value Model Portfolio offer the highest expectation of superior performance.

With interest rates being significantly higher in the emerging markets compared to the developed countries, the outlook for lower rates in 2001 seems to be favorable. With lower interest rates, emerging markets equities are expected to improve solidly from their 22-month low reached at the end of 2000.

Tomorrow we look at the top value major markets. Until then good global investing!