It's that time of the year again. Rankings and reviews are going to come out en masse over the coming weeks.
Everyone (including myself) will pick out those statistics that best suit their narrative. As Mark Twain rightly said: "There are three kinds of lies. Lies, damned lies, and statistics."
Though there is always something to be learned from stats, however incomplete or biased they might be. Such as: there is always a place in the world where money can be earned.
As it turns out, the unexpected winner in that category this year was… Russia!
Below, I have summarised three learnings from 2019. I am also inviting readers to email me what unexpected, off-the-wall investment trends they expect for 2020.
Russia comes out at the top
I spotted this fact when rummaging through German business weekly Wirtschaftswoche and its very own ranking of 2019's best-performing major stock markets.
|Russia||MSCI Russia||+ 56%|
|USA||S&P 500||+ 27%|
|France||CAC 40||+ 24%|
|China||Shanghai Composite||+ 22%|
|Japan||Nikkei 225||+ 22%|
|UK||FTSE 100||+ 15%|
|India||MSCI India||+ 9%|
|Turkey||BIST 100||+ 8%|
* until 7 November 2019
I am more than proud that I relaunched Undervalued-Shares.com in December 2018 on the back of the #1 company on what was to become the #1 stock market the following year. That was one lucky pick out of those 50,000 publicly listed companies worldwide. Thanks, Gazprom! Thanks, Vladimir! It's also quite funny when a country's politicians send out all the necessary signals that lead you to a lucrative investment. Who needs analysts when you have presidents like that?
Though technically speaking, the Wirtschaftswoche ranking is somewhat flawed. E.g., Greece is missing on the list, despite racking up an impressive gain of 47% that should have put it on the no. #2 spot (I recently covered the stunning performance of the country's large banks in another article). The Greek stock market is pretty small, which is why – rightly or wrongly – it is often left out of such rankings.
That aside, there are some useful lessons to be learned from this year's stock market performance.
Lesson #1: "Exotic" countries can be surprisingly easy to access
A lot of private investors still shy away from what they deem "exotic" countries.
Russia, Greece or Brazil would not have attracted the average Joe Sixpack equity investor.
- "Too risky."
- "My broker can't trade there."
- "I can't access information."
But do these concerns hold water?
Risk is, first and foremost, down to individual companies and at what price you buy them. Ask the shareholders of "safe" Western household names such as Kraft Heinz (-45%), Thomas Cook (-100%), or Lufthansa (-20%). Nota bene, these are companies located in countries where the overall stock market performed exceedingly well in 2019. Their fall from grace is all the more remarkable given that the tide was rising.
There are still lots of brokerage firms that don't offer their clients access to global markets. Large financial services firms have always been slow to change. Why anyone still uses them is beyond me, given that there are so many alternatives:
- Interactive Brokers in the US offers access to virtually all major markets and has 500,000 clients (many of my readers seem to use them, and I get nada for recommending them).
- Swissquote in Switzerland, an online broker that allows even residents from exotic jurisdictions to open an account via mail.
It's not difficult to get access to the major markets of the world, but it might require a switch in account.
Not being able to access information can be true for some countries and companies. Though most of the companies that I feature offer a similar level of transparency, whether they are located in a Western industrial country or elsewhere in the world. Transparency standards and regulation are pretty identical for large companies, wherever they may be based. Also, buying into companies where that has yet to be improved can be an opportunity. It means you can buy before others learn about how great a company it is.
With all that in mind, you'll see Undervalued-Shares.com continuing to feature a mix of companies from around the world. During 2019, I was a bit too Euro-centric for my taste. I will aim to feature more stocks from the US and Asia in 2020. Though at the end of the day, my selection of countries, regions and sectors will always be driven by where I sense the most money can be made; and influenced by the fact that I am a two-legged research operation with all the constraints that come with that. I reserve the right to bail on my promise for more American or Asian companies next year, if I don't end up coming across the right stories.
Lesson #2: Buy when it's "down and out", provided fundamentals are good
The UK market provides a good lesson, too.
Anyone who thought about investing in UK stocks this year will have considered the influence of Brexit. Much of the international media made Brexit sound like the UK market wasn't worth considering because of reasons X, Y and Z relating to the country leaving the European Union. It turns out the UK is now featuring among the best-performing countries of the year. How come?
Investing is simply about buying when things have gone out of fashion and represent excellent value.
The UK market had fallen behind the rest of the world to a point where it was the cheapest it had been in 30 (!) years, based on the fundamentals of the companies. Whatever Brexit risk there was, it had been priced into the market – and then some.
For me, it's one of the most rewarding parts of my work to build a case why a widely-held belief is wrong or outdated, and to then see things turn around or catch up.
Goldman Sachs recently made a major U-turn on its assessment of the UK, as reported in the Daily Telegraph on 1 December:
"Goldman Sachs is betting on a “Boris boom” and a surge of foreign fund flows into Britain … propelling faster economic growth through the early 2020s than in the struggling eurozone.
The US investment bank expects a “Brexit Breakthrough” and a catch-up surge in undervalued UK assets as one of its top seven trade ideas for 2020, advising clients to take the plunge on sterling and beaten-down equities in the domestic sector."
Value investing is not particularly fashionable nowadays. Indeed, anyone could have made oodles of money this year by simply buying Apple, Google and Amazon. Based on this year's performance of widely-popular tech companies, you'd never need to pay much attention to your investments and send your money to Silicon Valley or other "hot" companies instead.
However, in the long run, value always wins. Value is nothing else but buying future cash flow at too low a price. For as long as cash has a value, value investing will remain the king of long-term investment strategies. That's a subject I will write more about in the coming months. Buying undervalued assets will undoubtedly remain at the heart of Undervalued-Shares.com. I'll keep looking for value in spots where others aren't looking, or that are currently out of favour. It's not the only winning strategy, but the one that I believe yields the best long-term results with the least heart palpitations along the way.
Lesson #3: The attitude of locals is a useful contra-indicator
Here is a lesson you are unlikely to have seen written about elsewhere yet. I passionately believe it to be true and important.
Seeing investors disheartened about a famous company located in their own country is a particularly good sign.
Among the companies that I featured this year, there have already been a few case studies proving this point. For example:
- When I reported on VW/Porsche in February 2019, most of my (large) German readership started to yawn or made a gesture of outright refusal. VW/Porsche is now up about 20%, beating the other German car manufacturers by a mile.
- Russians never view their own country positively, and no one in Vladimir's empire believed that Gazprom was going to turn the corner this year. Now, look at it.
- Most of the British investors I know personally held negative views of the British stock market, largely influenced by the daily 200-decibel screaming match that played out in the country's hysterical mainstream media this year. Though when you rose above that and looked at valuations, many British stocks were (and continue to be) a no-brainer.
I do think local intelligence about companies is critical. However, I also believe that if a domestic audience is entirely frustrated about a well-known company, then that's usually a sign of capitulation prices.
My last and final research report for the year will be very much cut from the same cloth. It'll feature an American company and one that my American readers will probably have strong, negative feelings about. Way to go!
So, what to look at for 2020?
I'll soon be heading back to Zwickau in the Eastern part of Germany, to see my stock market buddy Jens Rabe and shoot a video about "Investment ideas for 2020 that are outside of the mainstream".
Needless to say, since we came up with the idea, I have been contemplating what to feature. Given how many smart people there are in finance, it's not easy to come up with ideas that no one else has come up with already.
I am currently sifting through countries, sectors and companies. There is already a draft list, but one can always do with more ideas. That's all the more true if the ideas come from a switched-on readership such as yourself.
If you've got anything that you find is worth looking at, and which is a bit off-the-wall, then I'd love to hear about it! Short descriptions, forwarded documents, links to articles all work for me. I can't research or feature all of them. But I do read each email and reply to everyone personally (at least for now – after another year of readership growth I might have to reconsider).
2020 should be another lucrative year, and I am working hard to provide you with research that is unconventional, entertaining and ever so slightly ahead of the curve. Members will continue to receive 10+ in-depth research reports with my best ideas of that year, readers of the free Weekly Dispatches will receive a similar mixture of content as in 2019, and I have a few new website features coming up. Watch this space.
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