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.