Is the USA still investable
Weekly 48 2024
Europe is considered uninvestable by many. In their eyes, Europe is on its last legs, heading back to the Middle Ages. However, that view is highly exaggerated.
Europe is considered uninvestable by many. In their eyes, Europe is on its last legs, heading back to the Middle Ages. However, that view is highly exaggerated.
Of course, Europe has its problems—or rather, one major problem. Our political class, driven by dogmatic beliefs and a desire for self-promotion, has created excessive regulation, an unfriendly environment for entrepreneurs, and, perhaps most significantly, exorbitantly expensive energy. These politicians are democratically elected and theoretically represent the will of the people.
Yet, there is still much to appreciate in Europe: its rich culture, excellent schools, outstanding companies, great food, and most importantly, its people. Interestingly, Europeans themselves are often more optimistic about the continent than those who don’t live here.
The silver lining of our biggest problem is that politicians ultimately bow to the will of the people. And the public is increasingly vocal about where they feel the political class has overreached. The Draghi report has clearly outlined the pain points. The challenge now is to muster enough political courage to take action. That could be the turning point for Europe.
I believe this change isn’t far off. I’m optimistic about Europe.
America, meanwhile, is an entirely different region, with its own customs and culture. Americans are generally more entrepreneurial and place much greater value on a small government and individual freedom. They wouldn’t tolerate the bureaucratic overreach we see in Europe.
But politics in America also leaves much to be desired. How else can you explain Trump, Biden, and then Kamala Harris being the best a country of 380 million people can produce as presidential candidates?
As in Europe, politics in America ultimately follows the will of the people. Both regions remain democracies.
The Economist raises the question: should you even invest outside of America?
I want to reverse that question: why would you still invest in America today?
The so-called Buffett Indicator has reached unprecedented heights. As a result, the expected return has now dropped to -0.4%, including dividends.
The Shiller PE makes the unusual nature of this situation even more evident.
As shown in the graph, periods of high Shiller PE ratios are typically followed by periods where the ratio dips below the average.
If the ratio simply returns to the average, you can expect a return of around 1.8% in the U.S. over the coming years. However, if the ratio falls below the average—which is usually the case—the expected return ranges between -6.1% and -1.6%.
This process is rarely gradual. As the graph illustrates, the ratio often drops sharply, followed by a partial recovery—in other words, a significant correction or crash.
I feel much more comfortable with my investments in Europe than in a broad U.S. index.
(picture by @psarofagis)
All of this is, of course, primarily meant to gauge the overall sentiment. We invest in individual stocks, making the state of the indices less relevant.
Even in the U.S., there are interesting and worthwhile stocks to buy, while Europe also has its share of overpriced stocks.
However, it’s clear that we are currently in a market best suited for individual stock investors. The hunting grounds in Europe are more appealing due to much lower valuations. Additionally, the downsides in Europe seem more than adequately priced in.
Articles and updates this week
Last week, we received the figures from Ackermans and Focusrite. The Focusrite figures, which came in yesterday, cover the entire fiscal year and are not a quarterly update. I want to take my time reviewing these numbers, but I first prioritized our new stock. You will receive my analysis of these figures as soon as possible.
Read the Ackermans update: Tops my expectations
A new stock was also introduced: This nearly doubled—and still has potential.
On Tuesday, an article was published: Where’s the value found