New White Paper – Global Value

August 22, 2012

Below is our first issue of The Idea Farm Weekly!  Please let us know your thoughts and suggestions, and feel free to pass along to those that might find this email of interest.

Depending on feedback, this email will go out once (Sunday) or twice (Wednesday) a week.

Before we start sending out newsletters and publications from third party investment commentators, we wanted to test the software with our new white paper.

Summary:  Over seventy years ago Benjamin Graham and David Dodd proposed valuing securities with earnings smoothed across multiple years. Robert Shiller popularized this method with his version of this cyclically adjusted price-to-earnings ratio (CAPE) in the late 1990s, and issued a timely warning of poor stock returns to follow in the coming years. We apply this valuation metric across over thirty foreign markets and find it both practical and useful, and indeed witness even greater examples of bubbles and busts abroad than in the United States. We then create a trading system to build global stock portfolios based on valuation, and find significant outperformance by selecting markets based on relative and absolute valuation.

Below is a Figure from the paper demonstrating an equity curve from one of the trading strategies detailed in the paper:

Any feedback is encouraged!