Lately I've been reading a lot about investor John Templeton. He famously started investing by putting $1 in every stock in the Dow in 1939 just as World War II broke out and most investors sold.
He correctly thought that all of those factories would soon be busy making war materials.
According to Broken Leg Investing, "From 1954 to Templeton's retirement in 1992, the Templeton Growth Fund returned a 16% CAGR after fees, one of the best records in investing history."
After the war, Templeton turned to global investing. He was among the first to invest in Japan when it was just exporting toy robots and the like. He saw a dynamic, fast-growing country (2.5x U.S. growth) where the average stock had a P/E of 4, whereas the U.S. stood at 19.5 at the time.
Per one of Templeton's speeches in 1979:
It seems to be common sense that if you are going to search for these unusually good bargains, you wouldn’t just search in Canada. If you search just in Canada, you will find some, or if you search just in the United States, you will find some. But why not search everywhere? That’s what we’ve been doing for 40 years; we search anywhere in the world.
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Return of Emerging Markets
I recently came across this chart; it shows that when the dollar goes up, U.S. growth and tech stocks win, and when the dollar drops, emerging markets and value stocks win:
Source: Jeff Weniger tweet
This trend changes every 12–15 years, meaning it's a secular, or long-term, trend.
I started trading and writing about stocks back in 1995, riding the dot-com bubble to great success. If I remember correctly, my entire portfolio was up 110% in 1999. In 2000, the bubble popped and all markets washed out until around the start of 2003, when emerging markets and large-cap value led all sectors up until the 2008 debacle.
It is surprising to note that in 2009, emerging markets gained 71%, leading all sectors.
Strategy
If you believe that the dollar will peak over the next year or so and that emerging markets will have another long run, I can give you a very simple way to make money. I should call it the DeHaemer Emerging Market Turbo Money Pipeline or something like that, but for now, I’ll just explain how it works.
Back around 2003, I took The Economist's Big Mac index and cross-referenced it with a chart in the back of the Financial Times newspaper showing various countries' growth in terms of GDP.
For those who don’t know, the Big Mac index prices the McDonald's sandwich in various countries. Since each burger has meat, produce, and cheese and includes the price of service wages, rents, taxes, etc., it represents a consistent measure of pricing power around the world.
You can find a current version of the index here.
On this list, you’ll see that the top-five most undervalued currencies are from Venezuela, Romania, Indonesia, South Africa, and India, in that order. In India, a Big Mac costs $2.39, while in Switzerland, it costs $6.71.
So we know India is an undervalued, low-cost country. The problem with undervalued countries is that they tend to have failing economies.
So you have to look at GDP growth, which I found on Wiki.
The only one of the top-five undervalued currency countries that is also among the top 25 countries by GDP growth is India, coming in at No. 8 with a GDP of 6.5% per year.
From this, I drill down to Indian stocks that trade on U.S. exchanges. You can find them here.
From there, you apply your personal investing metrics: value, growth at a reasonable price, technical analysis, etc. (It should be noted that the Indian BSE index is up 20% this year and just hit an all-time high.)
This system works again and again once you get the tailwind of a falling dollar, which, given the U.S.' exploding debt and inept elite, should happen any day now.
All the best,
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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