International Value Investing
While the US stock market has been a relatively good performer as compared to other stock markets around the world, it would not be wise to expect that this will continue over the long term and assume it as status quo. As I have mentioned in my various posts and articles if you have been following what I have written, “nothing is permanent” is one my my mantras when it comes to investing. With regards to deep value stocks, impermanence plays out in the form of cyclicality. In international investing, I do not believe that the US markets will continue to outperform every single market over the next decade or so. As it stands, the United States markets trade at about 21 times earnings and on a price to book basis of more than 3. Japan and Europe trade at about 13 times and 17 times earnings respectively. On a price to book basis, Japan and Europe trade at 1.2 times and 1.3 times book. So the valuations of the United States market are higher than that of Europe and Japan. So, the simplistic way of looking at it is to look at the cheaper markets and find opportunities that make sense. For example, a company in the US may trade at 2 times book value but the a company operating a similar business in Japan, with higher quality margins and return on equity may trade at 1.2 times book value. This represents possibly, a significant discount to what the Japanese company may be worth.
Lower Valuations May Mean Better Expected Annualized Returns Going Forward
In an article published by Gurufocus on the 30th of October 2018, they have tabulated what expected returns are going to be in the future for several markets. In calculating projected annualized return, the study takes into account dividend return, change in business growth and change in valuation. If you are talking about a positive change in valuation, it would make sense to think that companies which are undervalued stand a higher chance of a positive change in valuation than companies which are richly valued. This has been validated by numerous research on high book to market stocks versus low book to market stocks.
The results are shown below.
Source : Gurufocus
For now, the emerging markets and countries such as Singapore, UK are expected to have higher annualized returns from this point forth.
Adding Non-Us Stocks Lowers Volatility In A Portfolio
Source : Vanguard
And also, studies suggest that adding non-us stocks to a us stock portfolio would make sense for investors as it will serve to reduce volatility. In fact, there is research that shows that for the same level of expected return, volatility is reduced with international investing. Also, for the same level of volatility, expected returns can increase with international investing.
Go Where Value Is To Be Found
From the perspective of an investor seeking out bargains, the idea is to go where value is to be found. In the words of Benjamin Graham, the market is a voting machine in the short run but a weighing machine in the long run. Most times, mispriced equities will readjust themselves to a price that reflects the fundamentals of a business. So going by the maxim, I would invest wherever value is to be found.
Net Current Asset Value Stocks In Other Countries
With regards to net current asset value stocks, you may find that many of these opportunities disappear fairly quickly in the US. But if you are willing to look beyond US, for example to places like Japan and Singapore, you will find a good number of high quality net net stocks, stocks which are trading at distressed valuations without elements of distress. Many of them have low levels of debt and high quality scores as compared to their US counterparts. Hence, being the simple investor that I am, preferring to look at assets than earnings, the world’s stock markets can present some really interesting finds to the investor that is willing to venture out of his comfort zone, that is, their home markets.
Whatever it is, always insist on a bargain purchase price when purchasing such stocks and I think you will do just fine.
Thanks for reading and I hope you have enjoyed this article. May you be blessed with prosperity, health and happiness!
These books which I have written are case study driven and discuss strategies, mindsets and situational approaches to employing the net current asset value strategy.
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- A database of net net stocks or net current asset value stocks
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- Investing research of deep value stocks