On Average, This Has Turned Every $25 Invested Into $161
When you make this unique type of trade in your brokerage account, you enter a long history of multibillionaires.
They've used it to historically turn every $25 into $161...
You can make the same type of trade right now.
Eric Fry, contemplating love for Russia, reports...
In March of 2015, we presented a very contrarian proposition: Sell U.S. stocks; buy Russian stocks.
The author of that proposition was none other than Bill Bonner, the founder of Agora Inc. In making the case for selling U.S. stocks and buying Russian ones, Bill cited the analysis of his "old friend at OfWealth."
That "old friend's" calculations showed Russian stocks to be among the cheapest stock markets in the world... and U.S. stocks to be among the most expensive in the world.
Confronted with these data points, Bill remarked...
Bill's old friend believes Russian stocks will continue to outperform U.S. stocks... and he explains his thinking below.
There's little love for Russia in the West. This isn't surprising given the daily servings of anti-Russian coverage in the mainstream media. But it's often the most hated investments that offer the best profit opportunities.
So it has proven with Russian stocks, which are up 26% this year measured in U.S. dollars. Despite this gain, they're still cheap and offer a great opportunity.
Back on March 17, 2015, I wrote, "Why I am buying Russia and selling the USA." I analyzed 16 developed and emerging stock markets using four valuation measures.
Only one market was expensive on all measures: the USA. Only one market was cheap on all measures: Russia. The conclusion seemed clear. You should sell U.S. stocks and buy Russian ones.
Here's a chart that shows how things have worked out since March 17, 2015. For Russian stocks, I've used the VanEck Vectors Russia ETF (NYSE: RSX). For the U.S., I've used the SPDR S&P 500 ETF (NYSE: SPY).
The Russia ETF is up 12.9%, plus it has another 4.0% of dividends (net of fees), giving a total return of 16.9% over 17 months since March 2015. That works out to be an 11.3% annual equivalent with compounding (profits on profits). Remember, this is in U.S. dollars, so we're comparing apples to apples.
By comparison, the S&P 500 ETF is up 4.9%, plus another 3.3% of dividends net of fees. That's a total return of 8.2% over 17 months, which works out to 5.6% a year (again with compounding).
So it's clear that Russian stocks have significantly outperformed. Of course, there's a big difference between the chart lines. Russian stocks have been much more volatile. But patient investors don't need to worry about that. You just buy things when they're cheap and hold on until they're not.
Sometimes that takes a few months. Sometimes it takes many years. But either way, it usually works out well in the end.
This year, the difference in performance has been even more striking. Here's the same chart since the end of December.
The Russian ETF is up 26.5% in 2016. There's no dividend to add yet since it pays once a year in December. The S&P 500 ETF is up 5.9% and paid 1.1% of quarterly dividends, providing a total profit of 7.0%.
In other words, in 2016, Russian stocks have outperformed U.S. stocks by about 20 percentage points. That's a huge difference.
So is it time to take Russian profits and sell? The answer is no, for the simple reason that Russian stocks remain extremely cheap. In the case of the Russia ETF, there is data for July 31. At that time, the price-to-earnings (P/E) ratio was just 7.2 and the price-to-book (P/B) ratio was 1.1.
The P/B ratio compares the market capitalization of the company to its book value, also known as net assets or shareholders' equity. That's all assets less all liabilities - everything owned less everything owed - and is a good proxy for liquidation value.
Stocks of companies that make a decent profit usually trade with a P/B ratio well above 1. For a country index, anything below around 1.5 is usually bargain territory.
For comparison, the S&P 500 currently has a P/E of 25.3 and P/B of 2.9. That means the U.S. P/E is 3.5 times higher than the Russian one, and the P/B valuation is 2.5 times higher.
So it's clear that Russian stocks are still extremely cheap in relative terms, despite their strong recent price performance.
You might think Russian stocks deserve this much lower valuation. In a sense, they do. Investing in Russian stocks is likely to be a riskier prospect than investing in U.S. stocks. For example, Russia's currency, the ruble, swings around depending on commodity prices.
But on the plus side, Russian companies are a lot more profitable than their American counterparts.
Look at return on equity. This is how much profit companies make in relation to their shareholders' equity (being the same as net assets or book value). Dividing P/B by P/E is the same as earnings-to-book-value, which is return on equity.
In the case of the Russia ETF, the return on equity works out to be 15.8%. In the case of the S&P 500 ETF, it works out to be a lower 11.4%. By this measure, Russian companies are 39% more profitable than American ones. And yet U.S. stocks are three times more expensive, taking a blended P/E and P/B view.
Given the low prices and high company profitability, I continue to believe Russian stocks will be the clear outperformers in the medium to long term. Do you own them yet?
Good investing,
Charles Graham aka Vanilla Spilla
When you make this unique type of trade in your brokerage account, you enter a long history of multibillionaires.
They've used it to historically turn every $25 into $161...
You can make the same type of trade right now.
Eric Fry, contemplating love for Russia, reports...
In March of 2015, we presented a very contrarian proposition: Sell U.S. stocks; buy Russian stocks.
The author of that proposition was none other than Bill Bonner, the founder of Agora Inc. In making the case for selling U.S. stocks and buying Russian ones, Bill cited the analysis of his "old friend at OfWealth."
That "old friend's" calculations showed Russian stocks to be among the cheapest stock markets in the world... and U.S. stocks to be among the most expensive in the world.
Confronted with these data points, Bill remarked...
- Broadly speaking, investors want to steer clear of pricey stock
markets and allocate to lowly valued ones... Often, the market most
likely to give you a healthy return going forward is the one that gave
you the weakest and most disappointing returns looking backward.
That's because high past returns typically mean an asset has become more expensive relative to its intrinsic value. And low past returns typically mean an asset has become cheaper.
Obviously, no one knows what the future holds, but everyone knows what the present holds... and everyone can determine the present-day valuations of a given foreign stock market...
Russia... is cheap... It gives you the most value you can get.
And where do you get the least value?
"Only one country is expensive on all measures," concludes our friend. "The USA."
A simple investment formula: Sell the U.S. Buy Russia.
Bill's old friend believes Russian stocks will continue to outperform U.S. stocks... and he explains his thinking below.
To Russia With Love
There's little love for Russia in the West. This isn't surprising given the daily servings of anti-Russian coverage in the mainstream media. But it's often the most hated investments that offer the best profit opportunities.
So it has proven with Russian stocks, which are up 26% this year measured in U.S. dollars. Despite this gain, they're still cheap and offer a great opportunity.
Back on March 17, 2015, I wrote, "Why I am buying Russia and selling the USA." I analyzed 16 developed and emerging stock markets using four valuation measures.
Only one market was expensive on all measures: the USA. Only one market was cheap on all measures: Russia. The conclusion seemed clear. You should sell U.S. stocks and buy Russian ones.
Here's a chart that shows how things have worked out since March 17, 2015. For Russian stocks, I've used the VanEck Vectors Russia ETF (NYSE: RSX). For the U.S., I've used the SPDR S&P 500 ETF (NYSE: SPY).
The Russia ETF is up 12.9%, plus it has another 4.0% of dividends (net of fees), giving a total return of 16.9% over 17 months since March 2015. That works out to be an 11.3% annual equivalent with compounding (profits on profits). Remember, this is in U.S. dollars, so we're comparing apples to apples.
By comparison, the S&P 500 ETF is up 4.9%, plus another 3.3% of dividends net of fees. That's a total return of 8.2% over 17 months, which works out to 5.6% a year (again with compounding).
So it's clear that Russian stocks have significantly outperformed. Of course, there's a big difference between the chart lines. Russian stocks have been much more volatile. But patient investors don't need to worry about that. You just buy things when they're cheap and hold on until they're not.
Sometimes that takes a few months. Sometimes it takes many years. But either way, it usually works out well in the end.
This year, the difference in performance has been even more striking. Here's the same chart since the end of December.
The Russian ETF is up 26.5% in 2016. There's no dividend to add yet since it pays once a year in December. The S&P 500 ETF is up 5.9% and paid 1.1% of quarterly dividends, providing a total profit of 7.0%.
In other words, in 2016, Russian stocks have outperformed U.S. stocks by about 20 percentage points. That's a huge difference.
So is it time to take Russian profits and sell? The answer is no, for the simple reason that Russian stocks remain extremely cheap. In the case of the Russia ETF, there is data for July 31. At that time, the price-to-earnings (P/E) ratio was just 7.2 and the price-to-book (P/B) ratio was 1.1.
The P/B ratio compares the market capitalization of the company to its book value, also known as net assets or shareholders' equity. That's all assets less all liabilities - everything owned less everything owed - and is a good proxy for liquidation value.
Stocks of companies that make a decent profit usually trade with a P/B ratio well above 1. For a country index, anything below around 1.5 is usually bargain territory.
For comparison, the S&P 500 currently has a P/E of 25.3 and P/B of 2.9. That means the U.S. P/E is 3.5 times higher than the Russian one, and the P/B valuation is 2.5 times higher.
So it's clear that Russian stocks are still extremely cheap in relative terms, despite their strong recent price performance.
You might think Russian stocks deserve this much lower valuation. In a sense, they do. Investing in Russian stocks is likely to be a riskier prospect than investing in U.S. stocks. For example, Russia's currency, the ruble, swings around depending on commodity prices.
But on the plus side, Russian companies are a lot more profitable than their American counterparts.
Look at return on equity. This is how much profit companies make in relation to their shareholders' equity (being the same as net assets or book value). Dividing P/B by P/E is the same as earnings-to-book-value, which is return on equity.
In the case of the Russia ETF, the return on equity works out to be 15.8%. In the case of the S&P 500 ETF, it works out to be a lower 11.4%. By this measure, Russian companies are 39% more profitable than American ones. And yet U.S. stocks are three times more expensive, taking a blended P/E and P/B view.
Given the low prices and high company profitability, I continue to believe Russian stocks will be the clear outperformers in the medium to long term. Do you own them yet?
Good investing,
Charles Graham aka Vanilla Spilla
