Fools Rush Into Stocks Unknown

by | Mar 15, 2019 | Archives

It’s foolish to predict the future.  But we can’t help but try.

And being foolish isn’t always bad.

Few great ideas are created by consensus, but many ideas that seem foolish have actually been genius that changed the entire course of mankind.

How can we tell which is which, if we do not try and are willing, from time to time wear a foolish face?

Perhaps Aristotle got it right when he said, “No great mind has ever existed without a touch of madness.”

We all have great minds in some way.  We all have some madness.

The trick, in applying our minds and madness to investing, is not to test how great our minds are, but to know the limitations of our madness.

marketwatch.com

Chart from Marketwatch.com article “How low will the S&P 500 go? Buffett and Shiller know” (1).

Many great minds believe in long term stock predictions.

A recent Wall Street Journal article “Impeachment and your investments” (2) contains five words of wisdom.

Guess what those words of wisdom are?

The article said: The $64 trillion question is what happens to the stock market if President Trump is impeached.

I’ve long contended that only fools predict stock markets, so here I go.

A week before Election Day 2016, analysts at Barclays forecast the market would drop by 11% to 13% if Mr. Trump was elected. When it became clear he had won, CNN anchors noted—almost with glee—that Dow 30 futures were down more than 900 points. They dropped 5% overnight, the maximum selloff allowed on the exchange. But I hope you didn’t sell: The Dow Jones Industrial Average regained 3% the next day and has risen almost 40% since.

When Andrew Johnson was impeached in 1868, markets were cruising in the wake of the Civil War, with banks and railroads making up the majority of the stocks. Lehman Brothers strategists calculated that the market—call it the Dow Jones Pre-Industrial Average—rose 10% in the three months before the impeachment, paused, then rose another 6% over two months after acquittal.

From the start of the televised Watergate hearings in May 1973, the market began a 16-month decline of more than 20%. After Nixon released the White House tapes and then quit on Aug. 8, 1974, the market popped up 5% in a few days. I hope you did sell then, because that’s when the real bloodbath started. The Dow dropped 27% through early October and bottomed out at 577 in December. Messy oil markets, inflation, a recession and Gerald Ford didn’t help.

Bill Clinton’s impeachment made similar shock waves. During the run-up to the release of the Starr report, from July through September 1998, the market sold off almost 20%. A friend who ran a big investment fund told me, “I don’t care what Clinton does with his sex life until it affects my portfolio.” Financial chaos after Russia’s debt default made matters worse. After Mr. Clinton was acquitted in February 1999, the dot-com debauchery began.

So if a Trump impeachment takes place, here’s what I think will happen: First, stock futures will soar, maybe by as much as 5% on Day 1. Bells will peal across the land, and I’d expect massive flash mobs dancing in circles singing “Ding, dong, the wicked witch is dead!” Or something like that.

Then reality will set in. To understand markets, you need to know that every morning, portfolio managers at investment funds meet to discuss short- and long-term trends. During market-shaping events these meetings feel like war rooms as investors think through best- and worst-case scenarios and assign probabilities to each, planning how to position their capital.

The likeliest outcome if Mr. Trump is impeached—unless he shot someone on Fifth Avenue—is that the Senate would acquit. And the bull market would survive.

The five words are “only fools predict stock markets”.

Two more words should have been added… “short term”.  The correct seven words that separate foolishness from wisdom should be “only fools predict stock markets short term“.

The Marketwatch.com article “How low will the S&P 500 go?” says: Buffett and Shiller know suggests that long term predictions are pretty accurate and each of the experts predictions for the US stock market from now to 2028 are pretty dim.

The chart (above from that article shows that only Schiller predicts growth.  Buffet and others expect a lower S&P 500, ten years from now.

The article says Every trader’s secret wish is to be psychic. If we could only know in advance whether the market was going to go up or down.

Well, good luck trying to predict next year’s return—or even just tomorrow’s. But surprisingly, there are several recognized methods for projecting the S&P 500’s SPX, -0.09% return in the next 7 to 15 years, and they’re pretty good.

The article then goes on to describe the long term predicting systems of Warren Buffet and Robert Schiller.

Personally for 25 years, I have used Keppler Asset Management’s predictions.  As you can see below since 1994 its been pretty good and Keppler projects that global share prices will rise in the years ahead, while Buffet and other experts predict that US share prices will fall.

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Will Keppler Asset Management’s predicted stock global growth through 2022 come true?

For the past ten years US stock indices have outperformed those of overseas stock measurements.

Perhaps we are about to see this shift from US to global equity dominance.  If so think about one more bit of advice from Warren Buffet.  “What the wise do in the beginning, fools do in the end.”

Which markets, if any, will rise over the next decade is unknown, but what we do know is that we can invest in a World share index at about a third the price to book (2.15 vs. 3.01) of the US index.   Even better if we invest in the ten best value markets, we are paying nearly 2/3rds (1.30 vs. 3.01) less that the US.

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Whether investing in an equally weighted portfolio of ETF that invest in the top value stock markets is foolish or fabulous is unknown, but it’s statistically one of the easiest, lowest cost, safest ways  to invest long term.

See how below.

Gary

The Only 3 Reasons to Invest

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The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

The goal of investing should be to stabilize our security, bring feelings of comfort and elimination of stress!

We should not invest in social networked protests that guarantee loss.  This is like burning our houses down in protest.

If we want to change the world, we should invest in good equities that bring profit and use the extra wealth to create something beneficial for mankind.

We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.

This is why my core stock portfolio consists of 16 shares and this position has hardly changed in five years.  During this time we have been steadily accumulating the same Top Value ETFs  and have traded only a few times.

The study below shows how a value based model portfolio that dates back to 1969 has outperformed almost every stock market in the world.

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The US market has not been even close to the top performer over the long term.

The DQYDJ Dow Jones Industrial Calculator (1) shows that an investment in the Dow Jones (with dividends reinvested) has risen at an average of 10.74% over the last 50 (51 actually) years.

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That’s 10.74% is pretty good, but an analysis of 51 years performance of all the developed stock markets shows that (using country indices as hypothetical investments) investing in the top value (not top performing) markets would have returned 12.5%.

The chart below shows the analysis.

 

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An annual return of 12.5% compared to the 10.74% US return is a 1.76% per annum difference.  This may not seem like much,

In the long term the difference is huge.  Calculations from the investor.gov site (2) shows that $10,000 invested at the 10.74% compound rate turns $10,000 into $1,817,734.62 in 51 years.

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Wow, that sounds pretty good until you look at the results of the 12.5% rates.  $10,000 grows to $4,062,362.22!

Investing in the top value (not the top return) markets earned $2,244,627.60 EXTRA!

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$4,062, 362.22 means you would have $2,244,627.60 MORE by investing in good value markets versus $1,817,734.62  earned investing in the US market.  That almost 125% more money!

Here are the best value developed markets at this time (as of end of March 2021).

keppler 4-2021

 

No matter how we look at it, over time, value investing always wins!

Our portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.  The course shows how to use the value analysis of Keppler Asset Management to create a portfolio of ETFs that cover undervalued stock markets.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage billions of dollars in funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) all of his funds are registered for the European Union citizens, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael over 25 years ago, so I am one of the few Americans who receive this data so I can share it with Pi subscribers.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 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.  Keppler looks at these numbers and takes market’s history into account.

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Michael Kepler CEO Keppler Asset Management.

Michael’s analysis is rational, mathematical and does not worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) markets.

This is an easy, simple and effective approach to zeroing in on value. Little time, management or guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment.  This eliminates the need for hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time and gain incredible diversification 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 Pifolio 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 track 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 so they provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2021.   There have been no changes since.

70% is diversified into Keppler’s good value (BUY rated) developed markets:  Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: China, Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

There is one trick Pi subscribers learn about China which is different from the rest of the funds.

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

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund invests at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

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 every market in our Pifolio.

This year I celebrate my 53rd anniversary of 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.

How you can create your own good value strategy.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special part of your course looks at how to spot value from cycles. Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

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The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Save $124.50 If You Act Now

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 that down to $174.50 in this special offer.  Plus I am reducing annual renewals from $299 to only $99.

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.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past five years right away, plus numerous updates over the next year. 

#1:  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.

#2: I guarantee to send you monthly updates that are based on a study of every share in 46 stock markets around the world.  These updates will show the values, the earnings of all these markets and categorize each market as Top Value (buy), Neutral Value (hold) or Poor Value (sell)

#3:  If you are not totally happy, simply let me know. I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.:

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

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 five years so you can back track if you desire.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Subscribe to a Pi annual subscription for $174.50 and receive all the above.

Your subscription will be charged $99 a year from now, but you can cancel at any time.

Gary

(1) www.marketwatch.com: How low will the- S&P  500 go Buffett and Shiller know 2019

(2) www.wsj.com: Impeachment and your investments