Combine Value and Forex Shifts

by | Nov 16, 2020 | Archives

Here’s why I sometimes break several of my investing rules.

One rule is to invest only in good value markets.

I invest instead in country ETFs that invest in the Good Value Markets outlined in the Keppler Asset Mangement analysis of 46 stock markets around the world.

Yet I hold asset in this market, the iShares MSCI Canada (EWC) ETF.  The Canadian stock market is  a neutral , not good, value market.  I’ll explain why in a moment.

Another rule is… don’t hold individual shares. 

Yet I hold shares in the Canadian Brookfield Renewable Energy.

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There are two reason why I have broken from my discipline.

The first reason I depart from this routine has to do with distortions in currency.  

One way to determine the future parity of one currency versus another is to compare the nation’s federal debt.

According to ciecdata.com (1) the United State’s Government debt accounted for 125.5% of the country’s Nominal GDP in June 2020, compared with the ratio of 107.8 % in the previous quarter.

To make matters worse, as the graph bellow from Statisica.com (2) shows,  that this debt grew by over a trillion dollars in the next months, so the percentage of debt to GDP.

canada

Canada’s pubic debt is 53.3% of its GDP compared to the US debt of over 125.5%

50 years of tracking and investing in  currency distortions has been very profitable for me and one measure of a currencies potential strength (versus another) is the difference in debt per gdp.  In this case the US debt  is 135% higher than Canada’s.

This difference suggests a huge potential surge in the Canadian dollar versus the US dollar.

The chart below of the Canadian dollar versus the green back shows a history of dramatic swings in parity.  The chart also shows that this is a likely time for the loonie to rise versus the buck.

canada

In the past decade the Canadian dollar has been at a high strength, worth as much as high as US$1.07 and as week as US$.71 cents.  That’s a 50% difference and the Canadian dollar was at the all time low just over a year ago.

Since then the Canadian dollar has climbed back to US$.76 but I believe has a long way it can still rise.  To my way of thinking this adds extra value to Canadian shares.

The second reason I invest beyond country ETFs is top suport (and profit from) something I believe in.

Here’s an example of how investing in value combined with a currency distortion, into something I feel is doing good in the world, can pay off.

I have believed in green investing for many years.  In January 2009 I invested in Brookfield Renewable Power Units at C$19.75 (at that time about US$15), because this company is all about renewable energy.

Since then, the shares have paid dividends each year of about 6% as the price has risen.

The Brookfield Renewable Power Fund was later merged into a much larger Brookfield Renewable Partnership and then partnership shares were given shares in Brookfield Renewable Corp.

I made this investment because I like renewable power and thought the Brookfield shares were good value at that time, plus because I felt that there was a distortion in the US/Canadian dollar parity.

My decision to invest in Brookfield Renewable Power Fund was based on multi currency reasoning as well as my quest for good value and income producing equities.

I keep about 5% of my portfolio in Canadian dollars and in January 2009 was looking for a good Canadian equity to add to the portfolio.

I looked first for value… second a good yield… third… growth potential… fourth… safety commiserate with risk premium (or discount)… and finally for an investment in the Canadian dollar.

When I reviewed the Brookfield Renewable Power Fund, I looked at earnings and took into account the demographics and potential for electricity prices to rise.

Then I asked, “Is this an investment suited to the longer view?” Electricity created by liquid (hydro power) and gas (wind power) seemed a good environmental option.

I invested US$30,000.

This has been a good investment as all the positive forces have pushed together.

Dividends have grown dramatically.  Already this year (2020) the shares have paid US$8,848 dividend and my original US$30,000 is now worth US$350,719.75.

Always keep value in mind and stick mostly to country ETFs that represent good value markets.  But if I believe that an investment in a neutral value market can enforce a social value, I am not afraid to invest in it.

The profit does not always materialize.  That’s why it’s important to factor in value and to diversify.

Some years back I invested in an Australian company growing sandalwood plantations.  I believe in the healing nature of essential oils and this project helped make sandalwood sustainable.  I did not properly assess the company’s debt load, (nor the integrity of the management) which impacted the share’s value.  The shares more than doubled in a year before going bankrupt, so I lost the entire $50,000 invested there.

Stop loss management (shame on me for not having it) might have also helped.

This is the nature of stock markets.  They rise and fall.  Some share prices skyrocket.  Other explode.  We can gain safety from the explosions by diversifying in good value ETFs.  Yet when we see a share that represents a value we believe in, it can make sense to invest, if we are careful in assessing the mathematics of the share’s value as well as the social value.

Gary

Gain Safety, Profit & Get Paid Double

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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 either.  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 a value based model portfolio that dates back to 1969 dramatically outperformed the US Market and almost every stock market in the world.

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Over 51 years the Top Value Strategy (with dividends reinvested) appreciated 12.5% per annum compared to the 10.74% for the Dow Jones industrial Index (with dividends reinvested).  This is a 1.76% per annum difference.  This may not seem like much, but in the long term the difference is huge.  12.5% increases $10,000 to $4,062,362.22!.  10.74% turned the Dow’s $10,000 into $1,817,734.62 in 51 years.

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.

The next four years will be a period of high overseas stock growth.

The chart below shows the last 26 years of real-time forecasting by the global equity analyst we track to make our portfolio decisions.

The analyst is Keppler Asset Management and the index they create The KAM Equally Weighted World Index is 15.4% below the value that the analyst forecast four years ago in September 2016.

The chart shows how in the past, two and a half decades there have been four opportunities (red Xs) when the entry levels in global markets were below or around the lower valuation band.  In the previous three low points like this, there has always been the highest growth and positive returns three to five years later.

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So it’s good to know that if you invest in global stock markets overall, now, you’ll make capital gains over the next four or five years.

More importantly you get paid more income now!

Current markets have turned economic history upside down.  Normally bonds pay the highest interest rates and add safety to a portfolio.  Not in recent years!

The standard now is that equities have been paying a higher yield than bonds.

Top value stock markets (shown below) pay higher dividends.  That’s one of the main reasons they are considered top value.   They improve diversification, give the best long term profit potential, and as the chart below shows, pay almost twice the the average US dividend yield. 

keppler 4-2021

Plus Value ETFs are Safer

The people who dominate stock markets include a pack of thieves.  This fact has always been true.

Shares in stock markets are manipulated all the time.  Stock markets (in fact almost all types of markets) are led by sharks plain and simple.  Count on this fact.  This is the nature of the beast and the number one goal of many big businesses is to take as much of your money as they can to line their pockets.

A study of 92 years of investment returns shows that, despite the fraud and cheating and deceit, stock markets are still a good way to make your money grow… if you invest long term and diversify.

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Our Purposeful Investing Course (Pi) strategy makes it harder for cheaters to grab your wealth because it’s very hard to manipulate an entire stock market, much less a dozen or so stock markets around the world.

Manipulators have a hard time tricking an entire market, especially larger markets.  If you get the best value country ETFs, your chances of long term profits improve.

Pi teaches an 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.

Here’s how 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.  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 of all 46 markets.

This year I will celebrate my 53rd 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 the Pi course.

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 higher 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 to introduce you to this online, course that is based on real time investing, I am knocking $124.50 off the subscription.

Save $124.50 If You Act Now

The global recovery from the pandemic is going to take years, so we have not only lowered the inital fee for the course, we have reduced the subscription to just $99 a year rather than $299.  Your subscription will be autorenewed in a year at $99, though you can cancel at any time.

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.ceicdata.com/en/indicator/united-states/government-debt–of-nominal-gdp

(2) www.statista.com/statistics/273294/public-debt-of-the-united-states-by-month/

(3) https://finance.yahoo.com/chart/Canadian dollar