Dear Financial Voice Reader,

Wednesday 16th May 2018 06:07 EDT
 

The lazy way to become a millionaire.

I like looking back on my columns to see if I was accurate…this is what I wrote in 2011 and then the update to today in bold.

“Listen closely, I don’t mean to be rude, but I will only say this once. What I am about to write is what is going to happen in the financial markets in 2011. I am not being arrogant. I am just telling you the way it is. I probably will repeat myself endlessly throughout the year but for now this is it.

How do I know? Am I a forecaster when we know how bad forecasters are? Am I into witchcraft or blackmagic – astrology even? Have I sold my soul to the devil in exchange for market insight?

Maybe. But that’s not how I know. I know because it’s my business to speak to the traders at the biggest banks, the people handling the money for the biggest family offices, their bankers, advisors, the people they inform and the people they listen to. But then I ignore all that and do my own analysis. And in this case it accords with what the smart big money is doing. When that happens and it is rare – I get excited. I am excited.

So here it is. First, world equities are not overvalued. Whether you follow forward or trailing price-earnings ratios (don’t switch off – this stuff can make you money) – which value the price of shares based on the profitability of the company ie earnings – then companies are trading at sombre 1990-92 levels – or 30% below a ‘normal’ non-boom or bust year and half boom year valuation associated with the dot-com era.”

Well, the market has indeed skyrocketed. Boy was I right! I continued…

“Indeed looking at the 2007 peak, equity prices are in the US 20% below there as is their valuations. In the UK they are 20% undervalued to 2007 peak and their prices 10% below. In India they are at those peaks in terms of prices but valuations are 30% below. All this leaves far more room for upside. And Brazil is a case in point. It is above its 2007 peak it is below the valuations those companies carried.

A company in the Dow Jones Industrial Average for instance have their shares priced at about 14 times their profits per share. That is well below the 20 or 25 ‘multiple’ they could easily be at. Consequently I can see much upside.

The other reason for my confidence is that the 10 year cycle of US equity returns shows we have had about a 0% return from US equities in the past 10 years. That suggests on past experience that in about 5 years you will have about a 200% return from 2005-2015 period! How much has gone between 2005 to 2011? Good news! Pretty much 0%. So the whole 200% will come from 2011-2015 potentially. (Not in a straight upward line!)”

Take your Amazon investment - £10k when you read my article becomes around £100k or put another way, £100k makes you a millionaire.

Free course on economics and markets on www.alpeshpatel.com/apprentice

Alpesh Patel


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