In this post I’ll bring in a simple trading strategy that is well varied and has been proven to work across different marketplaces. In short, buying cheap and trending shares has historically resulted in notably higher returns. The strategy is a combination of the two different investment styles, value, and momentum.
In a previous post I described how the range of possible final results in trading into an individual market is exorbitant. Therefore, global diversification is the main element to make sure that you reach your investment objective. This strategy is diversified across strategies, markets, and different stocks. The benefits of this strategy are the low implementation costs, a higher diversification level, higher expected earnings, and lower drawdowns.
We’ll use data from Barclays for the CAPEs which represent valuations, and Yahoo Finance using quantmod for the returns that do not include dividends, which we’ll use as complete momentum. Let’s take a look at the paths of valuation and momentum for the U.S. Both corrections are easy to spot, because the momentum was low, and valuations decreased. The U.S. stock market currently has a solid momentum as measured by the six-month overall return, but the valuation level is really high. Which means U.S. is not the optimal country to purchase. So, which market is the optimal place to be?
There is one market that is just in the right spot: Russia. It has the highest momentum and second least expensive valuation of all nationwide countries in this sample. In emerging markets … Read more