In 4 Steps to Retiring a Millionaire I talked about some ways to use valuation to time markets. I thought it would be useful to follow a portfolio on the site with some market timing trades.
Before we start, I’ll hedge with the fact that I don’t expect this portfolio to wallop the market. In fact, I wouldn’t be surprised if it does poorly. To start I won’t be using any trend or momentum indicators and deeply undervalued assets tend to get even more deeply undervalued for a while.
ProShares Short High Yield
Interest rates are at near a generational low, as they go up bond prices will go down – especially junk bonds.
Platinum & Palladium
Historically, platinum has traded at a premium or slight discount to its precious metal cousin, gold. Right now, gold trades for $1,208/oz and platinum trades for just $925.50.
The Uranium price has fallen 80% since Fukushima five years ago. In the mean-time nuclear power sources have turned to secondary sources to purchase uranium. Eventually the secondary sources will run out and the price will necessarily go up to allow producers to earn a profit. We will use Cameco.
The price of Coal has fallen 64% in the past five years and 76% since July 2011. Much of this is due to the attempted creation of alternative energy sources and the increased regulations on the industry. Regardless, of how this works out, it is likely the price of coal is too low.
CAPE stands for cyclically adjusted price to earnings ratio. The ratio is calculated by dividing the current price by the average earnings over the past ten years. Averaging out ten years of earnings smooths any cycles that are either artificially inflating or deflating earnings at the current time. We’ll include all countries with current CAPEs below 10x.
The current countries are: Russia, Brazil, Czech Republic, Poland and Turkey. Unfortunately, there isn’t a good option for investing in the Czech Republic.
As always, the portfolio will be tracked on the portfolio page.