Uncertainty creates fear and fear creates opportunity. The recent vote in the UK makes Brexit more certain and after that vote the British pound dropped over 1% versus the US dollar, as this chart from www.finance.yahoo.com shows.
The British pound had been recovering from a disastrous two year slide since August 2019.
An article at NASDAQ.com “Reality bites pound as Brexit fears return” tells why this recovery suddenly changed over the last two days.
The article says: The pound extended its slide on Wednesday, as Britain’s fixing of a fresh Brexit deadline rekindled fears of a chaotic exit from the European Union, while the dollar won back lost ground.
Sterling has collapsed more than 3% since it peaked at an 18-month high of $1.3516 after Prime Minister Boris Johnson’s landslide electoral victory last week.
His government, which campaigned to “get Brexit done,” on Tuesday set the end of 2020 as an immovable deadline.
“With the level of frothiness in positioning, I think people had priced in very smooth sailing throughout 2020,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.
We can bet that, for the upcoming months, there will be a lot of speculation… conjecture… pontification… rumor and guess work about how Brexit will go and if it will happen. Many opinions will be given about the future of the British economy, stock market and British pound. Lots of short term froth and volatility and difference of opinion.
Value investors however look at the long term, math based, economic facts.
The fact is that the British have almost balanced their budget in the last decade.
A Bloomberg.com article “U.K. Borrowing Hits 17-Year Low as Anti-Austerity Calls Grow” (2) says:
The U.K. government is borrowing less than at any time since the turn of the millennium, fueling pressure on Chancellor Philip Hammond to end austerity.
The budget deficit in the fiscal year through March fell to 24.7 billion pounds ($32 billion), or 1.2 percent of gross domestic product, the Office for National Statistics said Wednesday. That’s the least since 2001-02, when Tony Blair was prime minister.
The deficit has fallen from a towering 9.9 percent of GDP in the aftermath of the financial crisis and Britain is now only borrowing to fund its investment needs.
A drop on borrowing from 9.9% to 1.2% is impressive and supports a stronger pound.
Math from the Economist’s Economic and financial indicators points out some other math that supports the pound.
On page one of these statistics we can see that the British economy has been growing more in line with the Euro area rather than the dollar (US, Canada, Australia) areas. If Brexit does take place, the UK will line up more closely with the dollar economies.
Page two of the Economist statistics show that money has been flowing out of Britain but that the UK budget balance at -2% is less than half of the US. The interest rate on the British pound is also less than half that of the US. These facts are also supportive of a stronger British pound.
An article at forexlive.com “Fitch affirms UK credit rating but retains ratings watch for downgrade” (3) shows the improved fiscal state of the UK in graphical terms.
These figures are an impressive show of strength but the Top Value UK Country ETF iShares MSCI United Kingdom fund has dramatically underperformed The S&P 500 since 2018.
The British stock market has dramatically underperformed other stock markets this last year. There appears to be little fundamental support for this weakness, except fear created by the uncertainty of Brexit.
This low performance has created powerful UK market valuation comparisons as the statistics from Keppler Asset Management below show. The price to book of the UK MSCI Index is less than half of the US MSCI Index. The P/E ratio is almost half and the average dividend yield almost triple that of the US.
Based on these math based facts, it makes sense, if one is prone to speculation, to increase the weighting of the iShares MSCI United Kingdom ETF (symbol EWU). History suggests that an equal weight of the top value shares provides the best and lowest risk long term return.
However when anomalies such as this sudden fall of the pound or the distortions we viewed last week in the Norgwegian krone tempt us with an opportunity to speculate on math based value… not opinion based news, so we gain a way that can enhance our profits without great risk.
Stress Less Investing
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 the 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.
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.
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.
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.
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!
$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).
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.
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 indices 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.
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.
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 auto renewal will only be $99 a year from now, if you renew, but you can cancel at any time.