I’m not sure EM index is comparable to what I’m buying. EM P/E ratio is probably somewhere around 10x, which is not that cheap to me. I tend to buy companies trading well below that, somewhere around 3x P/E.I'm not dismissing your strategy; but I want to point out that similar arguments could have been made for the aggregate U.S. vs. emerging market stock markets for decades; EM has had a fraction of US valuations for decades; and yet, the country with the high initial valuations won by magnitudes, even after decades. Somehow, the earnings in the denominator of "P/E" of the low valued companies "mysteriously disappeared" on a continued and sustained basis (somebody please explain this to me). What happened to the companies in the respective index in aggregate, can also happen to individual companies; probably even more so.Petrobras still makes about the same profit as Chevron while trading at 1/3 the valuation. Forward looking dividend yield is still 15%+. I have no idea when the stock will break out but I get paid a strong dividend while waiting.
We don't even have to go through the trouble of following and analyzing an individual company, to understand that valuation numbers may have little meaning. I myself made the mistake of betting too much on valuation multiple reversion about 2 decades ago.
And I never said EM P/E will somehow catch up to US P/E of 30x. I have absolutely no idea and that’s not what I’m betting on. I’m only saying a stock trading at sustainable 3x P/E with double digit shareholder yield will make a good investment.
Low valuation doesn’t mean anything to me unless combined with shareholder returns. Does EM ETF pay a 15% dividend? I don’t need the valuation multiple to reverse when I get paid a 15% dividend. But most of the times they do reverse when they trade at such low valuations. That’s why I’ve done much better than the market in the past few years.
Statistics: Posted by gougou — Tue Jun 04, 2024 3:04 am — Replies 157 — Views 26052