Multi Currency Contrarian Value

by | Aug 15, 2011 | Archives

Here is a thought on multi currency contrarian value.

Last week’s message saw that Keppler Asset management’s top value markets are Austria, France, Germany, Italy, Japan, United Kingdom.

A reader sent the following note about that message:  Italy, Japan, UK as a buy.  You must be kidding.

Keppler does not joke in the least. He is very German in that way and almost two decades of Keppler’s analysis shows that his theory of choosing based on statistical value out performs the general market.  Here again is a chart showing the long term performance of the State Street Global Advantage Fund versus the Morgan Stanley Major Market Index.


The managers at State Street (one of the largest fund managers in the world) follow those statistics and invest most of the time in places where those tracking the local media avoid… hence much better returns if the discipline is adhered to.

Having been at this business for over 40 years, I have seen a lot of short term speculative ideas come and go. I have learned that market timing does not work.  It is just logical that buying almost anything at an all time high does not make sense.

Keppler Asset Management  is one source of data we use to examine global market values.  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…I’ve learned over the years to listen.

From this Keppler develops his Good Value Stock Market Strategies. 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.

The overall market value is one of many filters we should use when we review value…each leading to specific shares.

Once we settle on a specific share we finalize the examination with a seven step review.

#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

Michael Keppler warns investors not to misinterperate the investment analysis implicit in the Country Selection Strategy. A country is BUY-rated based on the valuation levels reflected in the MSCI benchmark index of country. A BUY rating therefore does NOT imply that any stock in that country would be considered an attractive investment.

To invest according to the Country Selection Strategy it is necessary to construct diversified, risk-controlled, representative country portfolios in every BUY rated country, weighting each country approximately equally in the overall portfolio. It is not appropriate to instruct a stockbroker to simply to select stocks in the BUY rated countries.

Here are three rules why value investing (which is almost always contrarian to the market) makes sense.

Value Rule #1:  There is always something we do not know.  The more we research the more likely we are at risk of analysis paralysis.

Value Rule #2:  Fear almost always oversells a market.  In other words bad news drives investors away and pushes prices so low that they become good value.  This is why the best time to seek value is during times of turmoil… like right now.  Value investing generally provides its best returns during tikes of early recovery.

Value Rule #3:  Value is classical not fashionable.  There is so much noise… so many rumors… so many scams… false leads and such that no one can stay on top of all this information. Value on the other hand is easy to determine and continually gauge.

Keppler is solid and intelligent… has a great logic… has incredible data and is extremely thorough measuring the balance sheets of all the shares in every market than working up to determine value.

It is quite interesting how value investing is often also contrarian investing, so Italy, Japan and the UK all make sense in that way.

Of course one can rely instead on main stream media writers who have little investing experience and buy investments… like the Swiss franc and gold while they are at all time highs. I expect though that one will find that these are a bad value now.

Should one buy gold and Swiss francs now?  Listen again to my phone interview with Rich Checkan of Asset Strategies Inc.

These investments should be held as insurance… but insurance is usually a cost… not an asset so in the same way one would not hold excessive amounts nor would one lament when their prices falls (just as one does not feel bad when they do not collect on insurance).

Along with the insurance… history and common sense suggest that a dedicated program to investing for the long term in equities in good value markets is a good diversification.  Perhaps better now because of the fear in the global market place.

Here are three ETFs, one each for the three seemingly scary good value equity markets according to Keppler’s analysis.

Italy: iShares MSCI Italy (EWI).

UK: iShares MSCI United Kingdom (EWU). 

Japan: MSCI Japan Index Fund (EWJ).


Join Merri, me and Thomas Fischer as we enjoy the Blue Ridge leaf change and update where to invest globally and how to earn extra income with an international micro business. See  our October 7-9 International Investing Seminar.  See details here.

Little Horse Creek Autumn

Join Merri, me and Blaine Watson for his Investing Beyond Logic here in the High Country of the Blue Ridge.