Investments

Global exports make up ~ 13% of the $15 trillion U.S. economy. Of the $400 billion of U.S. affiliate income earned abroad (U.S. co. income earned from business operations), half comes from Europe and half comes from the rest of the world. The two largest contributors to U.S. affiliate income in Europe are the Netherlands (27% of Europe) and Ireland (16% of Europe). The European Union (EU) is China’s biggest export market, buying close to $300 billion in Chinese products in 2012.

The division of foreign markets into developed and emerging segments dates back to 1981, when Antoine van Agtmael, an economist at the World Bank, referred to third-world countries as emerging markets. In a 2011 performance study, the Aperio Group looked at 10 years of return data (12/31/2000 to 12/31/2010) from all active emerging markets mutual funds. 

Anyone who put money into an S&P 500 index fund between late 1998 and early 2001 experienced a cumulative loss, as of January 21, 2012. Adjusted for inflation, the S&P lost 18% from August 2000 to January 2012. According to Yale economist Robert Shiller, this has never happened to the U.S. stock market, even if one were to go back to 1871. Even those who bought on the eve of the 1929 crash experienced a brief gain, in inflation-adjusted terms, in 1937.

Companies that buy back their own stock reduce their outstanding share count that, in turn, helps to boost earnings per share. Some argue that buybacks are not a good predictor of the stock’s future performance (e.g., executive officers of a company may encourage a buyback because their bonus may be tied to earnings per share). It appears that the best kinds of repurchases are ones that managers opt for simply because they view shares as cheap. 

Nick Murray is a highly sought-after public speaker. He has been writing about financial services for over three decades. Below are some excerpts from his book.

An ancient Chinese proverb says that the beginning of wisdom is calling things by their right names.

Since WWII, there have been 12 devastating bear markets in U.S. stocks. Near the trough of the last one, stock prices were 50 times higher than they were at the top of the first one.

According to a Wall Street Journal article (February 2012), historical evidence shows stocks with lots of “buys” from analysts do no better than the broad market, on average. Perhaps this is because analysts give 11 times as many “outperform” or “buy” recommendations than they do “underperform.” New research suggests there may be a way to discern which “buys” are worth heeding.

Investors often worry about market volatility. One hedging strategy is to look for investments that increase in value when markets decline in order to get some downside protection. 

A royalty trust collects and distributes income from oil and gas or mining operations. There are ~ 30 royalty trusts in the U.S. with a combined market value of ~ $12 billion. Most are designed to self-liquidate in 20 years or less; these trusts have no employees or physical assets. A royalty trust holds the right to receive income from a fixed number of properties.