FOLLOWING THE BEST INVESTORS & WHICH GLOBAL MARKETS OFFER MORE VALUE?

I have made a guest post on a website I only recently came across, but now see it as being a useful tool for many investors. My article here touches on points I probably have already made on the blog but thought I shall share the link here anyway.

http://www.etfwatch.com.au/blog/following-the-best-investors–small-market-inefficiencies-in-lics

I hope readers may find the website useful and enjoy the article I wrote. Personally, I am very familiar with a lot of the LIC universe but I still think I will be using the site quite a bit. It was only the last few days that I ended up using the “Find a Fund” search function on the site as I pondered some overseas markets to consider if we ever go into bear phase again soon. This idea came from reading some more e-books from Meb Faber who I have mentioned on the blog here before. He was kind enough to make them available for free last week however I apologise to only mention that now! Here is a link.

http://mebfaber.com/books/

I have read the first four on the page here and recommend.

I am going to add some of these reads to the recommended reading category on the blog, as I forgot to mention them there before as they are shorter e-book style reads. One of his most popular books is “Invest with The House, Hacking the Top Hedge Funds”. This is about the same theme as I touched on in my article for ETF watch, talking about how we can follow the best investors. If you read this book you will discover that you may do well copycatting some of the world’s best investors, and you have access to implement this. It even does a lot of back testing to back this up. You will also gain an insight into many great investors and their approach and styles. It is based on the U.S. market but I would argue similar principles may work on the Australian market as I began to explore in the ETF watch article.

Meb Faber’s other book I read for the first time on the weekend was “Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market.” This spent a lot of time on how to use the CAPE ratio, with various other valuation tools, to your advantage. Not as an indicator to tell you which market is best for the next year or two, but to tilt the odds in your favour if your timeframe can extend for a decade. Over such a long timeframe, it makes a compelling case that investing in countries that are very cheap in terms of the CAPE ratio tend to outperform those countries that trade on extremely expensive CAPE ratios. One should use a little caution in some aspects of this. Firstly it might be prudent to look at a few other basic valuation metrics and see they also line up to agree that a market may be cheap or expensive. Secondly this measure can take you to some countries that may be emerging, frontier and quite volatile markets. If you are looking to buy some of the cheaper countries it may be worth considering diversifying across a fair few with modest weights. Whilst the research suggest on average the results can be quite rewarding, there could be isolated cases of markets that still fall heavily from such cheap valuations.

If you subscribe to this theory, then it may change your mindset as to which market to buy if we go through a correction or bear market in the next year. It may be the markets that if you read the financial press would seem crazy to go near, that you should consider buying. Anyone fancy buying on the dip Brazil, Russia, Eastern European markets in general, the “PIGS” countries, China, Singapore, South Korea? I’ve always thought markets and stocks can sometimes become so hated from the negative news flow that they almost simply run out of sellers and then form a bottom. Some mining exposures probably fit that description earlier this year. Meb Faber’s research in his book on specific countries and their markets seems to back this up. I have found myself just recently refreshing my memory about some of the ETFs that may offer some exposure here, hence used the ETF watch site search function as a starting point. I am a fair way of buying these though, just something to ponder if markets do eventually fall. The U.S. market by the way currently looks like one of the most expensive based on the CAPE ratio.

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