The new CAPE (Cyclically Adjusted Price to Earnings Ratios) ratios are out for the second quarter. Below I have listed the five most expensive countries and the five cheapest countries.
Most Expensive
- Denmark
- United States
- India
- Ireland
- Peru
Cheapest
- Czech Republic
- Russia
- Portugal
- Poland
- Spain
If you wondering why I focus on these ratios it is because it is excellent way to make consistent market beating returns. The key to beating the markets is to sell what is expensive and buy what is cheap.
You will notice that the US is the second most expensive market in the world.
Sell The US, Buy Russia
I read Steve Blumenthal’s market report “On My Radar” which is free, sign up here. Last week, he published a chart showing that when markets are trading at a CAPE where the US is currently trading that ensuing average ten-year returns are historically around 2.3% per year.
Oh, and you can count on a draw down of around 30-50% sometime during that ten years. Of course, most individual investors will sell during that drawdown further cementing in their poor returns.
This is the guy that is siting next to you in the bar taking a big slug of his drink and then telling you that he used to be a “long term investor” and that it is a tough racket. He will then tell you the markets are rigged and will give you advice to stay out of the markets as he stumbles to the bar exit.
Do not be that shlub, understand how to identify under and over valuation and trade accordingly. You can in fact beat the markets.
Most People Will Never Get It
You can read my article about how I use CAPE ratios to make market beating returns.
I write about CAPE and show how it can be used long term to beat the markets. However, I guarantee that most people reading this blog will not even bother to read the article much less implement the strategy.
The reason why most people will not bother understanding CAPE ratios and how to use them is because it is boring. Most people do not play in the markets to make money. Notice I said play and not invest. They play in the markets because most people want to gamble. They want action and gambling action provides a dopamine release that stimulates the pleasure centers of the brain.
I like making money and I like to emulate wealthy and successful investors. Wealthy and successful investors buy investments that are cheap and then wait for the market to bid up their cheap investments until they are not cheap. Rinse and repeat.
The System Cranks Out Profits
I have used the CAPE ratio and the methodology profiled by Meb Faber as a way to enhance my investment returns over the last few years by buying undervalued countries like Pakistan and Egypt and then selling them for around 40-50% gains in a year or so.
Right now, I like Russia, Nigeria, Brazil, Greece, and some stocks in Singapore.
If you are a serious investor looking for long term gains than check out Mr. Fabers paper “Global Value: Building Trading Models with the Ten-Year CAPE”.
If you are lazy and do not want to do the work yourself, you can pay me and subscribe to my newsletter “Actionable Intelligence Alert”. I will then do the work for you and you can ride my coattails to consistent market beating returns. Your choice, I make money either way.
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