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Why I’m Chomping at the Bit to Buy this Market

Written by Nicholas Vardy, CFA.

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Well, it took long enough.

After six months of markets locked in a narrow trading range, U.S. investors finally have awoken from their apathetic slumber.

Global stock markets sold off sharply yesterday in response to the unfolding crisis in Greece.

The technology-heavy Nasdaq suffered a three-standard-deviation drop based on the last three years of price action. Put another way, you'd expect such a drop to occur on only three out of 1,000 trading days.

And according to the CNN Fear and Greed Index, U.S. investors are now officially in "extreme fear" mode.

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The last time investors were this pessimistic was back in October, when the Index hit 0 for several days over the course of two weeks.

As painful as these moments are, taking advantage of these occasions can really juice your portfolio's returns.

Mr. Market's Moodswings

Such sell-offs are always more about market sentiment than actual fundamentals.

Sadly, market sentiment is the red-headed stepchild of stock market investing.

In a world awash with and bedazzled by complex financial models, gauging market sentiment doesn't seem as legitimate, as, say, fundamental analysis.

That's ironic.

After all, the best investors in the world know that the short-term price of financial assets is driven by little else.

Warren Buffett was a disciple of Ben Graham and a value investor. That places Buffett firmly in the fundamental analysis camp.

Yet, Buffett has said that the single-most-important thing he has ever read was Graham's chapter on Mr. Market's Moodswings in "The Intelligent Investor."

In his book, Graham compares the market to a manic-depressive.

Some days, Mr. Market is euphoric. On other days, he's very depressed. If you catch him on a euphoric day, he wants a very high price for his shares. If he's in one of his down moods, he's willing to sell you his shares for a pittance.

Mr. Market highlights the one thing you can predict with certainty about financial markets: investors will always overreact to events — whether positive or negative.

And it also highlights how savvy traders profit from just such overreactions.

Buffett himself walks the walk.

The last time the U.S. stock market experienced a 20% correction was in August of 2011.

In the first week of August, Buffett was buying his core holdings of stocks hand over fist, taking advantage of a fire sale in stock prices.

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Profit from the Stock Market’s Newest Red-Hot Tech Sector

Written by Nicholas Vardy, CFA.

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The "Internet of Everything" offers incalculable benefits as millions of devices become connected across the planet.

At the same time, the explosion in connectedness has introduced the world to a new word in our vocabulary — "cybercrime."

Ironically, this also offers traders and investors one of the most exciting investment opportunities in an otherwise flatlining U.S. stock market.

Over the past year, cybercrime has become a staple of the evening news.

In October of 2014, the breaches of the databases of The Home Depot (HD), JPMorgan Chase (JPM) and Target (TGT) resulted in the compromised security of 56 million credit cards, 76 million households, seven million small businesses and 110 million accounts. Last month, the IRS announced that the identities of 2.7 million taxpayers were hacked last year. Last week, the government revealed that hackers stole personnel data and Social Security numbers for every federal staffer, past and present.

According Symantec's annual Internet Security Threat report, cyber attacks and cybercrime against large companies — those with over 2,500 employees — rose 40% globally in 2014. Attacks on small and medium-sized companies, which accounted for 60% of targeted attacks, increased 26% and 30%, respectively.

And as the world becomes ever more interconnected through ever-expanding computerized networks, the frequency and scale of cyber attacks are likely to increase. By 2020, Gartner estimates that there will be over 26 billion Internet-connected devices, 250 million Internet-connected automobiles and a $50-billion market for surveillance. And as mobile payment technologies like Apple Pay and Google Wallet take off, mobile devices will become more prominent victims of cyberattacks.

The Eye-Popping Costs of Cybercrime

The costs of cybercrime are already huge.

The Home Depot estimated that investigation, credit monitoring, call center and other costs of its breach last year could top $62 million. Target estimates that its breach-related expenses hit an eye-popping $146 million. That's a lot of money. No wonder an estimated 60% of all companies experiencing a cybersecurity breach go out of business within six months of suffering an attack. Overall, cybercrime costs the globe over $400 billion per year. That's more than the annual gross domestic product (GDP) of the Philippines, a country of 100 million people.

And cyber attacks are about more than just losing money. Attacks can potentially shut down or manipulate a country's energy infrastructure, weapons defense systems, medical devices and transportation systems.

Russia launched the first cyber war against tiny Estonia in 2007. The president of Stanford University told me two years ago that the Silicon Valley-based university was being attacked dozens of times a day, with most of the attacks coming from China.

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The World’s Most Expensive (and Cheapest) Stock Markets

Written by Nicholas Vardy, CFA.

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As an investor, you generally want to avoid expensive stocks and invest in cheap stocks.

That's not good news if you're an average U.S. investor who has most of your money invested in the U.S. stock market.

According to a recent article in the London-based newspaper, The Telegraph, the United States equity market is the single most expensive market on the planet.

The Telegraph reached its conclusion based on a combination of three different measures: price-to-earnings (P/E) ratio, the cyclically adjusted P/E (commonly known as the CAPE ratio) and the price-to-book (P/B) ratio.

The P/E ratio, of course, is the most commonly used measure of value. You simply take the share price and divide it by the annual earnings-per-share figure. The lower the P/E ratio is, the better the value.

CAPE ratio is similar to P/E, but it measures average earnings per share over 10 years, and not just the past 12 months, the way a normal P/E ratio does. The longer time frame provides a more accurate measure of value.

Finally, there's the price-to-book ratio, or P/B, which looks at how a company's market value compares with the current value of its assets (e.g. real estate, buildings, machinery and intellectual assets, etc.).

By combining these three valuation measures, The Telegraph generated a much clearer, more balanced measure of the world's most overvalued and undervalued stock markets.

U.S.A. is No. 1 — as in Most Expensive

With a P/E ratio of 21.3, a CAPE ratio of 26.5 and a P/B of 3.01, the United States is overvalued when compared to its historic averages. In fact, the United States stock market was the most overvalued when compared to 34 other major global markets.

The only other stock markets overvalued based on these three key valuation measures were Thailand, Sri Lanka, Indonesia and Belgium.

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GLOBAL GURU CAPITAL – MONTHLY UPDATE

Written by Nicholas Vardy, CFA.

Untitled Document

GLOBAL GURU CAPITAL – MONTHLY UPDATE

May 2015

The "Ivy Plus" Investment Program gained 0.37% for the month.
The "Global Gains" Investment Program lost 1.40% for the month.
The "Double Your Dividends" Investment Program dipped 1.21% for the month.
The "American Alpha" Investment Program added 1.35% for the month.
The “Masters of the Universe” Investment Program rose 2.28% for the month.

THE "IVY PLUS" INVESTMENT PROGRAM
DIVERSIFIED STRATEGY EKES OUT GAIN


The "Ivy Plus" Investment Program gained 0.37% for the month. The program is up 5.05% year-to-date, through May 31. Twenty-four out of 26 positions have posted gains for the year.

Agriculture was the month’s top performer gaining 5.38%, followed by Hedge Fund Long/Short up 3.51%.

U.S. stocks ended the month higher across the board, as both global stock markets and fixed income investments dragged down the “Ivy Plus” Program’s performance. Real estate also pulled back after months of strong performance.

Both private equity and developed small caps boast double-digit gains for the year.  Specialist U.S. strategies focused on IPOs and corporate spinoffs are also strongly outperforming the broader U.S. market.

The “Ivy Plus” investment program positions performed as follows:

 

Monthly Gain

YTD Gain

Equities

 

 

 

 

 

US Large Cap

1.30%

3.61%

US Mid Cap

1.12%

4.93%

US Small Cap

2.02%

5.03%

Developed Large Cap

-0.05%

9.65%

Developed Small Cap

1.71%

12.33%

Emerging Markets

-3.55%

5.98%

Emerging Markets Small Cap

-2.63%

5.44%

Emerging Markets – Low Volatility

-3.47%

6.07%

Private Equity

2.69%

13.31%

Business Development Companies (BDCs)

-1.15%

4.93%

S&P 500 Equal Weight

0.72%

2.81%

S&P 500 Dividend Payers

1.29%

0.88%

Initial Public Offerings (IPOs)

2.38%

8.85%

Corporate Spin-offs

1.91%

7.06%

 

 

 

Fixed Income

 

 

 

 

 

US Treasuries

-0.50%

0.78%

Foreign Bonds

-3.23%

-5.28%

Inflation Protected

-1.01%

1.07%

High Yield Bonds

-0.11%

3.94%

 

 

 

Real Assets

 

 

 

 

 

US Real Estate

-0.30%

-1.70%

International Real Estate

-2.33%

7.94%

Timber

0.74%

2.68%

Agriculture

5.38%

4.95%

 

 

 

Hedge Funds

 

 

 

 

 

Global Macro

-0.33%

0.21%

Hedge Fund Long/Short

3.51%

9.16%

Managed Futures

0.76%

0.90%

Hedge Fund Managers

1.84%

3.67%

THE "GLOBAL GAINS" INVESTMENT PROGRAM
EMERGING MARKETS DRAG DOWN GLOBAL STOCKS


The "Global Gains" Investment Program lost 1.40% for the month. The program is up 6.88% year-to-date, through May 31. Nine out of 10 positions have posted gains for the year.

Emerging and frontier markets had a rough month, falling over 3% during the month. Developed markets, however, managed to eke out a gain, both in the large and small cap sphere. In fact, all three positions related to developed market now boast double-digit gains for the year, as does the allocation to non-US small cap stocks.

The “Global Gains” investment program positions performed as follows:

 

Monthly Gain

YTD Gain

 

 

 

Emerging Markets Low Volatility

-3.47

6.07

Frontier Markets

-3.55

-2.92

Global Value

-3.03

7.58

International Markets – High Quality

1.01

10.02

International Dividends

-2.13

6.47

Non-US Developed Markets

0.32

10.01

Global Emerging Markets

-3.65

6.21

Non-US Developed Small & Mid Caps

0.39

10.08

Non-US Developed Large Cap

-0.96

7.65

Non-US Small Cap

1.71

12.33

Global Guru Capital tracks 46 global markets on a month-to-month basis. Twelve of the 46 global markets posted gains for the month, and 31 of the 46 global markets have posted gains for the year.

It was a tough month for global stock markets overall, with some of the minor European markets eking out small gains.

The top five performing global stock markets for the month were:

 

Monthly Gain

YTD Gain

 

 

 

Indonesia

3.75

-4.28

India

3.23

0.18

Switzerland

2.49

11.71

Belgium

2.12

9.97

Italy

1.90

14.41

The bottom five performing global stock markets for the month were:

 

Monthly Gain

YTD Gain

 

 

 

Singapore

-5.85

-1.53

New Zealand

-5.99

-4.65

South Africa

-8.04

0.29

Brazil

-10.88

-11.76

Columbia

-12.26

-14.85

THE "DOUBLE YOUR DIVIDENDS" INVESTMENT PROGRAM
NEGATIVE MONTH FOR INCOME GENERATORS


The "Double Your Dividends" Investment Program dipped 1.21% for the month. The program is up 1.80% year-to-date, through May 31. Ten out of 12 positions have posted gains for the year.

The most conservative strategies- the S&P 500 Buy Write, Bank Loans, REITs and preferred stock- managed small gains otherwise weak month. US MLPs, Global Dividend Stocks, and U.S. Municipal bonds all performed poorly, each for their own particular reasons.

Municipal Bonds and US Business Development companies remain the program’s bets performers in 2015 with gains of 5.37% and 4.93%, respectively.

The “Double Your Dividends” investment program positions performed as follows:

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China: Year of the Sheep, Year of the Bubble

Written by Nicholas Vardy, CFA.

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If you've been long in Chinese stocks this year, congratulations. You've made a lot of money in the Chinese "Year of the Sheep."

So far in 2015, stocks in the benchmark iShares China Large-Cap (FXI) have delivered anything but sheepish returns, with an 18.5% year-to-date gain. Over the past 12 months, those returns jump to 37.5%. That makes the mainstream Chinese stock market the single best performer among the 46 global stock markets I track on a daily basis.

For stocks in China's A-shares market, the year of the sheep has generated even bigger winnings. The Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR), which tracks an index of the 300 largest and most liquid Chinese shares traded on the Shanghai and Shenzhen exchanges, has soared 44.8% year to date and a stunning 138% over the past 12 months.

Given the gains in China of late, one question on investors' lips is: Is the Chinese stock market in a bubble?

My answer? "It depends..."

Is China a Living, Breathing Bubble...?

A few years back, no market was hotter than China, as the endless promises of making your fortune by investing in the "China Miracle" filled your email inbox.

As with the U.S. housing crash, everyone "knew" the Chinese stock bubble was destined to burst.

But once the music in this game of musical chairs stopped, many investors found they couldn't find a seat.

Today, anecdotal signs of a Chinese stock bubble abound.

In the first five months of this year, Chinese investors opened more than 28 million new A-share accounts. That almost equaled the combined total number of new accounts opened over the past four years.

Small Chinese investors — who account for around 80% of the trading volume — are taking second mortgages to funnel capital into Chinese stocks.

Margin financing for stock purchases has exploded, doubling over the past year to more than 2 trillion yuan, or about 3% of gross domestic product (GDP).

And for my favorite anecdote...