We’ve arrived in Rome for New Years Eve. It’s damn cold. Yesterday was the coldest day in Malta in 22 years. We’ve got no concrete plans for NYE. We’ll likely make our way to the centre, find a nice pub or wine bar and check out the colosseum around midnight. We depart for our cruise on the 3rd of January.<\/p>\n
On the plane I was reading about global CAPE ratios. CAPE stands for cyclically adjusted price-to-earnings. It’s just a way to look at valuations of a specific market. \u00a0The US is at 26.5. That’s quite high. That means that VTI or S&P is trading at 26.5 x its current earnings. The general idea is that investing in a basket of countries with low CAPE will return more\u00a0than \u00a0investing in a basket of countries with a high CAPE. It is shown that through history that investing in countries with CAPE levels lower than 7 returned a 30.1% CAGR the following year. Even recently, people who invested in Greece when its market collapsed and it was trading at a 2.x CAPE would have enjoyed a 30-50% CAGR the following year. \u00a0It’s a hard thing to do, as a country with a low CAPE likely has a LOT of very current negative press like Russia and again, Greece right now. You’re going against the grain. \u00a0However, there is likely more return opportunity in those two markets than there is in other countries. \u00a0 You’d definitely want to buy a basket of country ETFs not just a few. \u00a0Like they say, “How do you get to a 90% loss, lose 80% and then lose half of that” \u00a0Just because something is low, doesn’t mean it can’t get lower!<\/p>\n
Aside from that, not much practical things there for me, at least not yet.. I don’t think I’ll be looking at investing into low CAPE countries anytime in the near future. If I do, it’ll require a lot more research and planning. \u00a0Russia (ERUS or RSX) and Greece (GREK) do look attractive<\/p>\n
I’m still entering portions of the 2015 portfolio. I have yet to enter the momentum and protector (Standard or Alpha) part and I’m only partially in the new SPY\/TLT trade. \u00a0I am waiting to do this during the 1st week of January when there is more volume and I can get a better sense of things. \u00a0I might add a bond rotation portion to the overall portfolio as well. We’re targeting 4-6% a month with a bit of leverage (1.6x)<\/p>\n
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