The best way to create long term investment profits is to get good value in the shares you buy.
Seven rules of global investing are:
#1: Good value stocks outperform expensive stocks.
#2: Stocks in companies with rising earnings outperform stocks in companies with falling earnings.
#3: He prefers companies with share prices already in established up trends.
#4: Stocks with high earnings and rising earnings outperform stocks with low and falling earnings.
#5: He buys cheap, high quality stocks with rising earnings and increasing attention from the market.
#6: Periods of high performance are followed by periods of low performance.
#7: Value is reflected long term. Equity markets are efficient in the long run
but are not effective short term due to human behavior.
We filter the investments we review in these lessons in ways
#1: Are the shares traded in a good value market?
#2: Does the share trade at fair Price to Earnings and Price to Cash Flow ratios?
#3: Does the share pay a good value dividend?
#4: Do the share have a good value relative to their previous price?
#5: Does the company have rising earnings?
#6: Has the share price been rising?
#7: Is the company’s management good and is their product or service line in
a wave of the future?
One portion of this filter is to keep track of global market values so we follow the analysis of our friend, Michael Keppler. Michael 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.
From this he develops his Good Value Major Stock Market Strategy. His analysis is
rational, mathematical and does not worry about short term ups and downs.
He, in my opinion, is one of the best market statisticians in the world. Numerous very large fund managers use his analysis to manage funds such as State Street Global Advisors.
Here is a summary of Keppler’s current comments on recent developments & outlook in international major markets that covers the month of June 2008 and is issued in July.
Recent Developments & Outlook
After two positive months, global equities turned sour again in June. The Morgan Stanley Capital International (MSCI) World Total Return Index (with net dividends reinvested, December 1984=100) lost 8.2 % in local currencies, 8 % in US dollars and 9.2 % in euros.
This means that year-to-date, this index has declined 12.8 % in local currencies, 10.6 % in US dollars and 17% in euros.
There was no place to hide in June: All eighteen markets covered by Keppler dropped.
Canada was the best performing market for the month losing only -1.6 %. Japan lost -6.4 % and Norway -6.6 %.
The worst monthly performers were Belgium (-20.1 %), Sweden (-15.3 %) and the Netherlands (-14 %).
Year-to-date, only Canada (+7.1 %) has delivered a positive return, all other markets covered here suffered declines.
The other two “best performing” markets Norway (-4.7 %) and Denmark (-8.1 %) were the only two markets with single-digit year-to-date returns.
All other markets suffered double-digit losses. Belgium (-27.6 %), Italy (-22.5 %) and Hong Kong (-22.1 %) have fared worst so far this year.
We are reminded of a valuable lesson seeing that Keppler’s Top Value Model Portfolio continued to underperform the benchmark MSCI World Index in June and year-to-date.
Keppler’s model portfolio last month dropped 11.2% in local currencies, (-11 %) in US dollars and (-12.2 %) in euro. Year-to-date, this portfolio has declined 20% in local currencies, 14.8 % in US dollars and 20.9 % in euros,
The portfolio underperformed the benchmark by 7.2 percentage points in local currencies, by 4.2 percentage points in US dollars and by 3.9 percentage points in euros.
There is no change in Keppler’s performance ratings this month. The Top Value Model Portfolio contains the seven national MSCI markets Belgium, France, Germany, Italy, the Netherlands, Spain and the United Kingdom at equal weights.
His current ratings suggest that these markets offer the highest expectation of risk-adjusted returns for long-term investors.
Keppler’s SELL CANDIDATES (Low Value) are: Austria , Canada, Denmark, Hong Kong, Singapore, Switzerland , U.S.A.
Keppler’s NEUTRALLY RATED MARKETS are: Australia , Japan , Norway , Sweden .
For more details on Keppler’s analysis, contact Roderick Cameron at 1-212-245-4304 or email email@example.com
Last week’s lesson looked at the fact that value portfolios tend to drop more than the market during downturns. Thinking this through would make sense. MARKET CORRECTIONS CREATE GOOD VALUE. As markets fall there are more shares that began to offer good value and values investors will begin to pick them up in a way that conflicts with filter number six above, “Has the share price been rising?”
If shares that have captured the market’s positive attention tend to rise faster, then we might predict that shares that have a falling price will tend to rise slower.
The idea we can use from this lesson is that just choosing shares of good value may not be enough. Look for shares of good value that have a rising price.
The table below compares Keppler’s Major Markets Top Value Model Portfolio with the MSCI World Index as of the end of June:
Valuation Ratios Rates of Return
Major Markets Top Value Portfolio
Price to Book Value 1.6
Price to Cash Earnings 6.6
Price to Earnings 10.1
Dividend Yield 4.8%
Cash Earnings Return in Equity 23.7%
Return on Equity 15.6%
Major Markets MSCI World Index
Price to Book Value 2.1
Price to Cash Earnings 9.2
Price to Earnings 14.3
Dividend Yield 2.9%
Cash Earnings Return in Equity 22.7%
Return on Equity 14.6%
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