Gaining the Value Premium

by | Feb 3, 2020 | Archives

Choosing value over growth is a powerful math based way to get the best stocks while maintaining maxim safety. 

Last week I sent Purposeful Investing Course subscribers the 79 page Keppler Asset Management’s Good Value Developed Markets Analysis  for the winter of 2020. This analysis showed a “Value Premium” opportunity.

The analysis said:  Current annual earnings growth of the MSCI World Value Index of 3.5 % beats the earnings growth of the MSCI World Growth Index of -2.5 % by 6.0 percentage points.

This does not make sense considering that the MSCI World Growth Index now sells at a premium of 143 % to the MSCI World Value Index based on key fundamentals, e.g. book value, cash flow, earnings and dividends.

The market must adjust to these facts sooner rather than later.

Let’s shed more light on the Value Premium.  A Fidelity article “Comparing the results of value and growth stock market indexes explains the Value premium” and shows that value shares have a significant advantage over growth shares in the long term.

Fidelity shows that over the period 1990–2015, large-cap U.S. value stocks had a total dollar premium of over $9,200 more during this 26-year period (assuming a starting investment of $10,000). In other words investors who put $10,000 into value shares earnd $9,200 more than investors who put $10,000 in growth stocks at and for the same time.

For Midcap value shares the gap was even more.  The value premium was over $22,000 and small-cap value shares turned $10,000 into $124,669, or $44,791 more than the ending balance in small-cap growth shares over the 26 years.

The chart from Credit Suisse and the London Business School shows similar results from the years 1926 up to 2012.

Screen Shot 2020-02-01 at 7.42.24 AM

Then after the big stock market correction in the early 2010s, this chart from (1) shows that growth shares surged ahead of value shares.

Screen Shot 2020-02-01 at 7.44.21 AM

This has created a huge distortion.   Keppler Asset Management (KAM) did the math on this distortion in the “Winter Developed Market Value Analysis” and said:

While the average developed market—as measured by the KAM Equally Weighted World Index—is now undervalued by 27% vs. the cap-weighted MSCI World Index based on traditional valuation measures, the Top Value Markets are now undervalued by 37% compared to the MSCI World (Standard) Index, by 50% compared to the MSCI USA Index and by a whopping 62% compared to the MSCI World Growth Index.

Value stocks worldwide have lagged growth stocks since the onset of the bull market ten years ago.  This creates a distortion.

I have repeatedly mentioned the difference in total returns over the last five years showing how value investments have lagged by a wide margin.

This means that currently, international value stocks remain among the cheapest in the world.

One ETF  that provides a way to easily invest globally in value shares is the iShares Edge MSCI Intl Value Factor ETF  (symbol IVLU) that tracks the investment results of an index composed of international developed large- and mid-capitalization stocks with value characteristics and relatively lower valuations.

Learn an even better way to invest in global value with our Purposeful Investing Course below.


Coronavirus and the Stock Market Round Two

Coronavirus and the stock market.  Round Two is coming.

This virus and the market faced off in the spring.  The market won.  As the chart below shows, after a huge March 2020 collapse,the DJIA is almost back to its December 2019 level.


The market’s back up, but history suggests that we’ll see volatility in the ten years ahead.

Here is a chart of the Dow Jones Index for the past three decades.  The .dotcom bubble burst just before the beginning of the 2000 decade.

The market then went nowhere from 2000 to 2014.   Finally it started reaching new high levels.

Such decades long sideways movement after a severe correction is nothing new in the stock market.

So everything’s in order… except the pandemic.  The ravages of the coronavirus dramatically increase the unknown and this uncertainty is the greatest purveyor  of weakness that a stock market can have.

Such delays have profound implications for older generations who may need to cash in equities for income.  How do we maximize the return on your savings and investments during this extremely dangerous time?

For the past five years, my strategy, to protect against the next stock market crash and yet gain income and appreciation from rising share prices is to invest in an equally weighted portfolio of the value based country ETFs.

We track 46 stock markets around the world in our Purposeful Investing Course (Pi) to determine which markets offer the best value so we can be in a perfect position to take advantage of stock market corrections all over the world.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Our Purposeful Investing Course (Pi) teaches an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  You save time 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 Pi portfolio 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 tracks 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 as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2019.  Now I am updating my plan to decide when it’s best to invest more.

70% is diversified into developed markets: Austria, Canada, China, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in emerging markets: Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

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

The ETFs provide incredible diversification for safety.  For example, the iShares MSCI  Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.

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 almost every market.

You can create your own good value strategy.

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.

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 two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

This year I will celebrate my 52nd anniversary of global investing and 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.

Those five decades of experience have taught me several incredibly valuable lessons.

The first lesson is that there is always something we do not know.

The second lesson is that stock market booms and busts always eventually return to value.

Third, the only sure way to succeed is to use time not timing.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but during the pandemic to introduce you to this online course  I am knocking $124.50 off the subscription.


Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years.

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.

If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.

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

Due to the COVID-19 pandemic we have cut the subscription to $174.50.  You save $124.50!

Then because this global recovery is going to take years, we’ll maintain your subscription at just $99 a year rather than $299.  Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.

Click here to subscribe to Pi at the discounted rate of $174.50

Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.