Some things in life are simple.
For instance, I do almost all my clothes shopping when stores are running their winter or summer sales.
You get exactly the same stuff…only cheaper.
Of course, if you’re a dedicated fashion follower, this won’t work. Because by the time the sales come around, the coat or jeans or sweatshirt you have your eye on may not be in vogue anymore.
But if you don’t care too much about the whims of the fashion world, it’s a rock-solid strategy.
I often pick up exactly what I want for half the price I would have paid outside of the sales.
Believe it or not, at its core investing is just as simple.
Successful investors buy stuff that other people don’t want when it’s “on sale.” The difference being they then sell the stuff they buy at “on sale” prices when it’s back in fashion. (This happens all the time in the markets.)
Now, I’ll be frank. Most investors never get into the habit of buying low and selling high.
That’s because it’s a lot easier to buy what is in fashion NOW…and hope that it will be even more sought after later on (allowing you to sell for a profit).
This strategy – what is known in the investing world as “momentum trading” – rarely works.
That’s because, by definition, you end up buying what everyone else is buying. That means you end up getting the same results as everyone else.
Another Global Titan Selling for a Bargain Price
Last week, I told you about a chance to pick up Russian stock “on sale.”
Today, I want to talk about a similar opportunity. This time in my favorite BRIC economy: Brazil.
The first move any bargain hunter has to make is to find out where the “on sale” items are.
I do this by looking through a list of the price-to-earnings ratios of a number of investable stock market indexes. (By that I mean stock markets that are easy to invest in as an American – usually through an ETF.)
The price-to-earnings ratio – or P/E – is a measure of a company’s share price relative to its per-share earnings. Put another way, it tells you how much investors are willing to pay for a dollar’s worth of earnings a company produces.
Once I’ve got my list, I look for anomalies – things that look out of place or “out of whack.”
Can You See the Odd Man Out?
If we focus purely on Latin America, here is my most recent list of P/Es by country (in alphabetical order):
Argentina – P/E of 11.3
Brazil – P/E of 11.2
Chile – P/E of 20.7
Colombia – P/E of 17.5
Mexico – P/E of 12.5
Peru – P/E of 40
Now, let’s say you are a bargain hunter, looking for a country that’s “on sale.” What looks attractive to you?
One thing that jumped out at me immediately was that Brazil’s P/E is less than that of Argentina, Chile, Colombia, Mexico and Peru.
That’s odd. Because Brazil is one of the most promising countries of the whole group.
Even better, the ETF that allows you to buy into Brazil, the iShares MSCI Brazil Index ETF (NYSE:EWZ), is trading near the bottom of its 52-week range.
As I type, shares in EWZ sell for $70.52. The fund’s 52-week low is $66.01. And its 52-week high is $81.76.
Of course, you need to watch out that EWZ doesn’t break below the $66 level. But on the upside, it’s a gain of nearly 16% if EWZ touches the top of its range again.
EWZ also carries an attractive dividend yield of 5.16% at today’s levels.
Over time, I expect the market will wake up to this anomaly. But until it does, Brazil…and EWZ…are “on sale.”
P.S. If you are really serious about making money in Brazil, I urge you to check out the presentation I’ve put together on a small Rio de Janeiro-based company that could be about to make the world’s biggest oil offshore oil find. All the detail are here.