May 22, 2015

In our prior article, we suggested that investors can benefit from doing the following:

  • Tuning out popular narratives and rationalizations, and staying focused on reliable measures of long-term value
  • Avoiding the temptation to buy overpriced investments
  • Investing in the rising tide of economic growth, as long as the price is reasonable
Below, we will use this framework to drill down into the three major areas of global stock markets: US, international developed, and international emerging. For each one, we'll provide some background, discuss long-term prospects, and address some popular viewpoints that have had investors overly focused on the short term or thinking it's "different this time."

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Feb 12, 2015
It seems like many people think of stocks simply in terms of their prices, as if stocks are just numbers on a screen that go up or down. Perhaps that's a useful simplification for day traders, but for long-term investors the reality is different: a stock represents fractional ownership of a real-world business, including a share of all earnings generated by that business in the future.

Those long-term earnings are the biggest component of the stock market's value, so it's obviously critical to have a good estimate of what they might be. Fortunately, this is pretty straightforward at the economy-wide level, because earnings tend to grow at a remarkably consistent pace over the long run. And yet, stock prices vary much more wildly than those long-term fundamental prospects would suggest they should.

Below, we will discuss why this is, the implications of these facts, the tremendous advantage they can confer to patient and level-headed investors, and why it's very unlikely that "this time is different."

Global GDP

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Aug 28, 2014
We recently came across a great chart showing valuations for the stock markets of the US, developed international countries, and emerging market countries. This chart provides an excellent snapshot of global stock markets.

Global stock valuations

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May 23, 2014
Our prior article presented evidence that valuations have had a huge impact on returns and risk when investing in the US stock market. In this article we look at a study that takes a simple approach to testing the importance of valuations for global investors, and shows that buying the countries with the lowest valuations has performed far better than the "buy and hold everything" approach.

Cheap markets return more than buy and
hold, which returns more than expensive markets.

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Nov 18, 2013
"Headline risks" have been practically constant through the ages, but for all the hype they generate, they've rarely had much lasting effect on market outcomes. Investors' eventual results have been far more influenced by valuations: whether the investments they were buying were cheap or expensive compared to their economic fundamentals, based on a reliable and consistent measure of value.

Valuations and subsequent returns

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