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Looking Beyond the Glasses

Tom Hendrickson Feb 08, 2015


I often make parallels between sports and investing/business – they’re just so clear and relevant. Coaches, players, strategies, team efforts, roles, systems, competitors, winning, scores; all of these things resonate in both locker rooms and boardrooms alike.


That said, when it comes to investing, there’s another oft-dissected life situation where elements emulate the investing world: dating.


Whoa! Wait a Minute …


… dating, by definition, is emotional, and we as astute, long-term, fundamentally driven, dividend-oriented investors want to make decisions that are as devoid of emotion as possible, right? Well, yes, in fact we’ve penned in these pages the extent to which some investors will go to ensure they keep as emotionally devoid a process as possible – and we encourage you to do the same.

But hear me out for a minute.


The Classic High School Rom Com


You’ve seen this movie before, here’s the ending: it’s a high school romance where a chivalrous, popular young man (the “quarterback,” we’ll call him) gains the affection of a less popular, often glasses-wearing, slightly poorly dressed young lady. Everyone thinks, “she has no chance, the football quarterback isn’t going to fall for this gal.” She’s not perceived by everyone else as the obvious pick; perhaps the captain of the cheer squad whose popularity rivals the quarterback’s (and is often the quarterbacks initial girlfriend) is the more apt choice.

But alas, after a “movie make-over” (which so very often involves losing the glasses, a perm or a hair straightening (depending on the era) and getting some better fitting jeans, but I digress) the quarterback becomes smitten by someone that he had previously written off … and they live happily ever after.

You’ve seen that one, right?


Why Am I Talking About Romantic Comedies? Here’s Why:


As part of our quarterly reading, we always include GMO’s letters, which often include the insight of the firm’s well known co-founder and Chief Investment Strategist, Jeremy Grantham. In the most recent edition, the 4Q 2014 letter, there is a six-page analysis of how GDP growth can—or can’t—help inform future investing returns. In the section, the co-head of GMO’s Asset Allocation team argues that while the 3-year GDP growth stats of the U.S. look like the high school cheerleader, perhaps investors should be looking “beyond the glasses” to other, lesser known or popular markets like Europe or the emerging markets in an effort to unearth the true diamonds in the rough.

Ben’s punchline is that while GDP can be somewhat informative about future returns in the medium term, they are terribly hard to predict. He prefers valuation, noting:

“The U.S. is about as far from cheap as any country in the world right now. To use one of the better single valuation measures out there, the cyclically adjusted P/E for the U.S. stock market is 26, versus just under 16 for the U.K. and Europe and a little under 14 for emerging. It will take a lot of good economic news to justify that kind of valuation premium in the medium term.”

Be sure to see our Guide to Foreign Dividend Stocks.


The Bottom Line


Perhaps, like the high school cheerleader who most easily attracts the quarterback’s eye, investors should be looking “beyond the glasses,” beyond U.S. markets to the less popular investing regions like Europe and emerging markets.

Be sure to check us out on Twitter @dividenddotcom.

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