Mebane Faber has a fascinating investment paper called Global Value: Building Trading Models with the 10 Year CAPE in which he discusses a strategy that invests equally-weighted in the most undervalued x% of country equities, rebalanced yearly, as measured by their 10-year CAPE (cyclically adjusted price-to-earnings ratio), and only when this measurement is below 15 (otherwise in cash). It looks like investing in the top 10% of undervalued companies will give you an annual return of nearly 19%! I sorted the study's 32 countries by 10-year CAPE, and this is what I got:
So according to the study, for outsized returns the top 10% of undervalued (and currently extremely distressed) countries to invest in are Greece, Ireland, Italy, and maybe Russia!!! The top 25% would include the PIIGS. With today's financial headlines all about the European sovereign debt crisis, that would take some serious conviction and courage for any investor.
So according to the study, for outsized returns the top 10% of undervalued (and currently extremely distressed) countries to invest in are Greece, Ireland, Italy, and maybe Russia!!! The top 25% would include the PIIGS. With today's financial headlines all about the European sovereign debt crisis, that would take some serious conviction and courage for any investor.
