Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market

by Mebane T. Faber

Investment bubbles and speculative manias have existed for as long as humans have been involved in markets. Is it possible for investors to identify emerging bubbles and then profit from their inflation? Likewise, can investors avoid the bursting of these bubbles, and the extreme volatility and losses found in their aftermath to survive to invest another day? Over 70 years ago, Benjamin Graham and David Dodd proposed valuing stocks with earnings smoothed across multiple years. Robert Shiller later popularized this method with his version of the cyclically adjusted price-to-earnings (CAPE) ratio in the late 1990s and correctly issued a timely warning of poor stock returns to follow in the coming years. We apply this valuation metric across more than 40 foreign markets and find it both practical and useful. Indeed, we witness even greater examples of bubbles and busts abroad than in the United States. We then create a trading system to build global stock portfolios, and find significant outperformance by selecting markets based on relative and absolute valuation.

Genres: Finance, Nonfiction, Business, Economics

82 pages, Kindle Edition

First published March 17, 2014

Reviews

[Brian Borgford · Rating 2 out of 5]

Woulda, shoulda, coulda

Interesting speculation on what you could have done and the results you could have had. An often repeated scenario of looking at the past and see what might have been if you took certain action and used certain models.
As with most of these books on investing, as good as they might be, the author never divulges what he in fact did and what were his results?
I am always reluctant to listen to advice from someone who does not divulge their track record - the actual track record.
With regard to investing internationally, you can’t do much better than investing in the largest US companies from the Dow Jones or the S&P 500. Most of these companies derive more than half of their revenues from other countries. Just look at their annual reports. To me this is a safer option than investing in stock exchanges that don’t have transparent rules. Again, show me a track record (real history, not hypotheticals) of success in foreign markets.
I am a successful investor and I write about my investing, but I only write about what I have actually done and what my results actually are – and they are pretty darned good.
Regardless this is a well written book with some interesting information. Kudos to the author for taking the time to put his thoughts into words.

Feel free to contact me if you want more information about my investing strategy. I make my income from investing, not from charging fees for advice so I'm not looking for customers.

[Tomas Krakauskas · Rating 5 out of 5]

Short book (more like a paper) focused particulary on cyclically adjusted price eranings ratio (CAPE) and its usage for making global portfolio allocation decisions. Research in book was backed by long term statistical analysis which is also easy to apply in real life. In short - great book (I have the same opinion for all M.Faber's writings)

[Eric · Rating 3 out of 5]

Though very specialized in its purpose and intended audience, Faber's treatise on value investing in global equity markets is a helpful aggregation of long-term valuation and subsequent performance data for global equity markets and a logical, empirically-driven case for employing the cyclically-adjusted price/earnings ratio (CAPE) to invest across individual country equity markets. Recommended for those interested in this very specific topic.

[Pinotcanoz]

Faber uses the cyclically-adjusted price/earnings ratio (CAPE), a metric popularized by Yale economist Robert Shiller, as a valuation tool to rank countries. In Faber’s model, an investor buys the stocks of the cheapest countries as ranked by the CAPE.
There are lots of good reviews on Amazon for this book Charles Lewis Sizemore, CFA give a great summary. Not much more to I can add.

[Vitalijus Sostak · Rating 3 out of 5]

CAPE for dummies

A solid book on virtues of value investing in the long run.

I'd recommend it for novices only, though.
The ONLY new thing I read here is that "optimal" CAPE period is about 7 years, and I'm not a zealous fundamental analyst at all.

[Michael Bond · Rating 4 out of 5]

A brief and efficient review of mainly one technique: using the CAPE ratio to value the market.

[Hankmardankus · Rating 2 out of 5]

Good read

not bad

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[Matthew · Rating 3 out of 5]

Investing in global markets by selecting those offering the best value produces outsized returns. Whodathunkit?

[Claudiu · Rating 4 out of 5]

Like all his books, this is a no-nonsense, straight to the point one, backed up by lots of data.

Covers mainly the CAPE ratio, and why it is a good predictor of future returns.

At the end it also mentions why market cap weighting is not such a good idea.

The only negative thing is that the advice at the end of the book is very succint and too generic to be useful for the average retail investor.

[Mark · Rating 3 out of 5]

Finished August 5, 2017. Readability 9. Rating 6. Good simple book. Focused on CAPE, but really just highlighting value as a tool for placing US equity markets in context and selecting or prioritizing non-US markets. Good source of data and tools as well, and mercifully devoid of hyperbole and investing silliness (other than in the subtitle).

[Abu Sesay · Rating 4 out of 5]

Meb's the man, mane.

Per usual Meb gives not only a concise and astute analysis of the "goin's on" in the world of investments, he is very kind and generous in pointing people in the direction of great references from bright, and most importantly, successful people such as himself. Admire his approach greatly.

[Piotr · Rating 3 out of 5]

In general the book says that:
a) You should allocate across different markets
b) You should not allocate money in the most expensive markets
c) There is a strong correlation between the valuation ratios (They predominantly use CAPE)
d) It would be very bad for you to enter the market during a bubble, as you might not recover in your lifetime

[Anders Gränfors · Rating 4 out of 5]

What markets to invest in?

Mr Faber describes the obvious value investing principle for global index investing. Easley explained. A must read for everybody that is seeking compounded growth on investments.

[Clyde jack · Rating 4 out of 5]

Very usable information

This book provides usable information about the CAPE ratio. A ratio that can help any investor see if the market, they are interested in, is overvalued. Anyone looking to invest in the stock market should read this book.

[John · Rating 4 out of 5]

Good backup for his value thesis on a global basis (plus a quick source of data and ETF lists). A bit long on the history of bubbles.

[John · Rating 4 out of 5]

3.5 stars. Good content though

[Tadas Talaikis · Rating 3 out of 5]

To say something is mean reverting or momentum it highly depends. For example a while ago I've done simple check between monthly CAPE and future month return. It is clearly momentum, not mean reverting:



Besides, CAPE isn't stationary process, so where exactly is mean? It clearly doesn't revert to its long term mean (around 16.5-17) for decades, therefore it's just a very dangerous guess against madness (inertia) of crowds. We had such guesses about "rationality" of investors before.

To use 10 year periods is too long because when you'll realize your beliefs should be revised probably you'll be dead already.

I'm not saying it's useless, but let's be real, let's say I;'m buying the stock market below average (I can't guess the exact bottom or top). I experience decades of drawdowns and then keep another decades to earn big profits. I should hope the guess of this concept is correct. Also I should hope for success to live over 80 years. So, CAPE is useless for realistic strategies that should work here and today.

[Alvin · Rating 4 out of 5]

Another brief e-book by Faber that develops the case for using cyclically adjusted price earning (CAPE)ratios to determine valuation. Though the work itself is very brief Faber does an excellent job establishing the usefulness of CAPE. Also, by linking to other research, his book actually expands in content.

I remain fonder of his moving average approach laid out in Ivy League Portfolio, but this methodology certainly has merit for the more active investor.