Not much changed in 2015. U.S. stocks started the year expensive based on the cyclically-adjusted price earnings ratio (“CAPE”) and ended the year expensive, whereas most of Europe started the year cheap and ended the year cheap. Joachim Klement of Wellershoff & Partners Ltd. broke out the numbers, making macroeconomic adjustments to account for GDP growth and interest rates.
As any value investor knows, cheap stocks can stay cheap for a long time, and expensive stocks can get ludicrously more expensive. But over the course of a full market cycle, returns tend to revert to the mean. So while I cannot promise that this will be the year that international stocks outperform American stocks, I can at least tell you that the odds are in our favor, at least over a time horizon of a couple years.
Source: Charles Sizemore
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