With almost daily news of various U.S. stock market Indexes surpassing the previous day’s record highs and valuations at the upper end of historical norms, investment managers often find themselves questioning “where does value present itself”? Historical studies indicate that the greatest factor to determine future stock market returns isn’t economic growth or corporate profits, but valuation.
There are many ways to determine valuation of a particular stock or index, and most involve dividing the stock price by some financial statement component (earnings, sales, book value, etc…). There are other metrics that involve more complex calculations, but we will save those for another week. The end result is compared over time to determine if the stock or index is “cheap” or “expensive”.
So where is Security National Bank finding value? Understanding that valuation is not a timing device, Security National Bank maintains a global approach when building strategies for our clients. One theme that worked well this year has been investments in international stocks. These stocks derive a significant portion of their business from the U.S. and are trading at lower valuations when compared to domestic companies. There are additional challenges that foreign economies are facing, making them “cheap for a reason”, but these issues have been subsiding - paving the way for higher stock prices.
While owning international issues, as part of a well-diversified portfolio, has boosted performance in 2017; it has been challenging over the last five years as global returns have been narrowly led by large cap U.S. stocks. Historically speaking, the ebb and flow of outperformance and underperformance between U.S. and International stocks goes in cycles. If valuation is any indication, the next five years should favor the latter.
For over 134 years Security National Bank has help generations of our customers make reasoned investment decisions by providing accurate and timely information and sound advice on how to use that information. If you can remember why you own a particular investment, you should visit with us and discuss it.
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