The Weird Way to Big Returns

Recently I was able to sit down to dinner with a group of astute investors and analysts who I consider some of the sharpest minds in the industry.

As we talked over steaks the size of a catcher’s mitt and some of my favorite bourbon, an interesting conversation came up about the relative attractiveness of global stocks as opposed to U.S. stocks, and it’s had my wheels turning ever since.

The Cyclically Adjusted PE (CAPE) Ratio measures price to 10-year average earnings, and if you take a look at it, you can see that the U.S. markets are expensive with a CAPE of 30. That’s high, but it isn’t bubble magnitude just yet.

What did look particularly attractive to the group were emerging markets.

Most of those in attendance at dinner were actively looking for exposure outside the U.S., and at least one was all-in on emerging markets.

Now it may take some time for these foreign markets to catch up with, or potentially pass the United States, but history tells us that buying into those nations markets with lower CAPE ratios is a solid strategy for long-term investing.

Let me show you

Trade Recommendations from the FDIC

I do a lot of reading during the average week.

I read a couple of newspapers every day along with several industry journals for the banking and real estate industry, and a steady diet of academic papers, SEC filings, and reports from various government agencies.

After work, you’re far more likely to find me reading a novel or biography than watching TV (unless it’s baseball season, which sadly it isn’t).

Both of my parents were big readers. I inherited the habit and have stuck with it my whole life.

I credit much of my success in life and the markets to this voracious reading habit.

Some of the best information I find comes from reports issued by the various government agencies, particularly the regulatory agencies.

These folks are observing the financial world at an almost microscopic level, and I find that I get a much clearer view of the economy and markets when I add their information into my analysis.

It’s a potent combination that can lead to the discovery of wildly profitable strategies and opportunities, like these