“If there’s one thing I learned from George—and it made me a better money manager—it’s not whether you’re right or wrong; it’s how much money you make when you’re right and how much you lose when you’re wrong.”
– Stanley Druckenmiller on his mentor, George Soros
Barron’s is out with a big “Buy Europe” piece in which they have strategists talking about the potential for Q1 ECB stimulus and the growth forecasts for the continent’s stocks. They cite low expectations, a coming quantitative easing program, the 11% sell-off in the Euro which benefits exporters and relatively cheaper valuations.
I think it’s a perfectly reasonable pitch and I largely agree with it. Without getting into the specific about how much Europe I’d own or which vehicles I’d use to play it, I think it’s interesting to think about the risk-reward.
If you’re reasonably bullish on the global economy – or at least not in the Crash Camp – Europe may present you with a nice set-up.
If the strategists are right and European corporate earnings grow between 8 and 13% in 2015 – plus the additional benefit of multiple expansion (European multiples have done nothing while US multiples have been expanding for years), then you get the double dutch benefit of both fundamental and sentiment improvement that’s been so fantastic here at home.
And if the strategists are wrong – meaning Greece collapses, Core Europe joins Peripheral Europe in recession, deflation takes hold, Draghi blows it with the stimulus and Germany remains intransigent – well, that’s pretty much the expectation being priced in at the moment anyway.
Druckenmiller talks about the difference between being “wrong” versus not losing much when being wrong and I think Europe provides exactly that potentiality for investors this year. If the Europe story is a bust yet again in 2015, big deal. And if it actually comes back, the comeback could be ferocious.
Not a bad framework from an investor’s point of view.