One of the core principles of our investing and business philosophy for almost 50 years has been to live, bank and invest where it is best for you, not just where you were born. This does NOT mean that where you were born and lived is not the best place to be or to invest.
This is why Merri and I are living in he USA and investing in US real estate but not US shares. The chart below shows that the USA is a great place to be.
OECD chart in Economist magazine (1).
However, if one listens to the various politicians stumping for office, it would seem as if the country has become a basket case. This incorrect dialogue can throw our perspective astray, so let’s readjust our view by looking at some facts:
#1: Industrialized society has seen a six times increase in wealth in the last century.
#2: Almost everyone is richer but most of the world has become cynical. Modern communications allows us to better see growing discrepancies between the rich and poor. Few people have confidence in governments, big business, or even some churches.
#3: This growing gap between the rich and the poor is leading to greater and greater turmoil, hatred and war.
This anger ignores the fact that we have all become better off and the USA is one of the greatest places to live.
The OECD began publishing a “Better Life Initiative” in May 2011. The attempt is to bring together internationally comparable measures of well-being.
Well Being includes: Housing, Income, Jobs, Community, Education, Governance, Health, Life Satisfaction, Safety and Work-life balance.
The US has highest net disposable income, household net financial wealth and personal earnings, by far. See the latest findings as of May 2016 at the OECD website (1). The US ranks well in almost every category.
Warren Buffett has a message about this for presidential candidates who have been spreading doom and gloom about the United States. He says: “America is great, and her children will inherit a better country than the previous generation. The babies being born in America today are the luckiest crop in history.”
Economic fundamentals support Buffet’s claim.
The tidal flow of economic opportunity is pushed by supply and demand. As the global population grows, new technology allows a larger population to be increasingly productive. Population (demand) and production (supply) grow. These are the underlying ground swells that push a rising tide of wealth in the global economy. We have a growing population, improved technology and increased production. This means there are more services and products (supply) and more people to buy them (demand).
Wealth is growing around the world. The US growth is one of the best of the developed worlds.
The Federal Reserve Statistical Release of March 10, 2016 for the fourth quarter of 2015 shows that the net worth of households and nonprofits rose to $86.8 trillion. The value of directly and indirectly held corporate equities increased $758 billion. The value of real estate rose over 450 billion.
Financial Accounts of the United States Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts: (Source Federal Reserve) (2).
There is, however, a growing inequality of wealth. The US has one of the worst discrepancies between the top and bottom 10% of wealth. This is good if you want to be really rich. The US is a great place to become rich.
The difference between the rich and the poor makes many people unhappy. We Americans need to work on that, so it is an opportunity.
We may not personally be able to totally change all inequality, but we can help. We can do many things to assure that we are not among the poor and to make sure that what we do also helps reduce income inequality.
This is why I named our course on value investing the Purposeful investing Course (Pi). We need profit from our investments, but also need our investments to have a purpose that is meaningful to us as individuals.
This is also why I am not investing in US shares. Many factors such as natural resources, efficiency, distribution of wealth and confidence cause a steady rise and fall of value of shares.
There is so much confidence in the US right now that investors pay way too much for the US shares.
This is why we need to always seek value. The US is a great place to be but the US stock market as a whole is overvalued.
The MSCI USA Index Price to Book Value is 40% higher than the MSCI Europe Index. The US index’s average dividend yield is 71% lower than Europe’s.
The best value is the Keppler Developed Markets Top Value Portfolio. The price to book value of this portfolio is 1.27 compared to the MSCI US index of 2.81. You can enjoy the benefits of living in the US, or wherever is best for you, but invest in stocks where they give you the best value.