The Perfect Stocks Portfolio: Global Value Investing in a Changing World

In the ever-evolving landscape of global markets, our Perfect Stock Portfolio continues to validate Benjamin Graham’s timeless principles. Despite the constant refrain that “value is dead” and “book value doesn’t work,” our approach of identifying financially sound businesses trading at steep discounts to book value while paying dividends has consistently outperformed the broader market in robust backtesting over the past 25 years.

U.S. Market Overview: Strong Performance Amid Bond Concerns
The U.S. markets have maintained their upward trajectory, with the S&P 500 SPY climbing 3.83%, the QQQ advancing 4.49%, and the Russell 2000 (IWM) gaining 2.98%. However, a notable concern exists: bonds remain in a downtrend while stocks push higher – an unusual divergence that typically resolves either through bond prices rallying or stocks eventually following bonds lower. Historical patterns suggest caution, as several major stock market corrections were preceded by exactly this type of divergence.

The U.S. economy remains fundamentally strong. Unemployment sits at 4%, consumer spending continues despite inflation grumbles, and small businesses are raising prices even as their post-election optimism fades. January’s CPI report came in hotter than expected, catching the perpetually inaccurate Wall Street and government economists off guard yet again. The Federal Reserve, under Jerome Powell’s leadership, appears committed to maintaining higher rates to combat persistent inflation, despite political pressure for rate cuts.

Europe: The Sleeping Giant Awakens
While everyone’s been fixated on U.S. markets, something remarkable is happening across the Atlantic. The Euro Stoxx 50 surged 8.5% in January – its strongest monthly performance in years. The Stoxx Europe 600 gained 6.4%, and even the UK’s FTSE rose 6.1%. Perhaps most surprisingly, Germany’s DAX reached an all-time high on January 25th, despite the country’s well-documented challenges with energy policy and immigration.

European corporate earnings have been robust, and valuations remain notably attractive compared to U.S. markets. This valuation disconnect is finally attracting serious capital flows. The ECB’s recent 25 basis point rate cut to 2.75% marks their fifth reduction in seven months, signaling a commitment to supporting economic growth while managing inflation, which currently runs at 2.3%.

Asia: China’s Forceful Intervention and Japan’s Corporate Revolution
China’s government has taken unprecedented steps to support its equity markets, mandating increased stock purchases by state-owned insurers and banks. The initiative is expected to inject approximately $138 billion annually into their $12 trillion market over the coming years. Despite ongoing concerns about deflation and property market troubles, Chinese tech stocks have surged, with the Hang Seng tech index up 25% from January lows, outpacing U.S. tech performance year-to-date.

Japan is experiencing a genuine corporate governance revolution. The Tokyo Stock Exchange’s new guidelines demanding improved ROE and higher valuations have sparked meaningful change. Companies are finally embracing shareholder-friendly practices, including dividend increases and share buybacks. Western activist investors like Oasis Management and Elliott Management are finding success where previous attempts failed, thanks to unprecedented government support for corporate reform.

Perfect Stock Portfolio Performance
Our portfolio delivered an impressive 4.5% return last month, outperforming the S&P 500. Standout performers included AP Moller-Maersk, Commerzbank, and several Asian holdings. The portfolio maintains its value characteristics, trading at just 77% of tangible book value while offering a dividend yield around 4% – four times that of the S&P 500.

These results continue to validate our investment approach: identifying good businesses with strong balance sheets, ample liquidity, and substantial undervaluation that pay dividends to shareholders. While we won’t outperform every month, this low-maintenance, easily implemented strategy has proven its ability to generate market-beating returns over time.

The message remains clear: despite the naysayers, value investing isn’t dead – it’s alive and thriving for those willing to look beyond the headlines and stick to time-tested principles. As global markets evolve and new opportunities emerge in Europe and Asia, our disciplined approach to identifying deeply undervalued, financially sound businesses continues to serve investors well.