The STRIDE Blog

#3 Global Value Investing: USA

stride-global-value-investing-usa-blogSTRIDE on USA: "The New York Stock Exchange is the most valuable by market capitalisation in the world by a long way and easily accessible from most countries.Those all-important value stocks are always there in this vast marketplace as long as the international investor knows what to look for."

NYSE, NASDAQ, BOX, CME plus many other regional exchanges

Currency: US Dollar

Fiscal year: October 1 - September 30

Choosing Your Slice of the American Pie

The USA has the most stock exchanges of any country in the world and, in the NYSE, the largest:

  • American Stock Exchange (NYSE MKT LLC: formerly AMEX)
  • Boston Options Exchange (BOX)
  • Boston Stock Exchange (NASDAQ OMX BX: formerly BSE)
  • Chicago Board Options Exchange (CBOE)
  • Chicago Board of Trade (CBOT)
  • Chicago Climate Exchange (CCX: parent company of the Chicago Climate Futures Exchange, European Climate Exchange and Insurance Futures Exchange)
  • Chicago Mercantile Exchange (CME)
  • Chicago Stock Exchange (CHX)
  • Currenex (currency exchange)
  • ICE (Intercontinental Exchange)
  • ICE Futures US (formerly the New York Board of Trade)
  • International Securities Exchange (ISE)
  • Iowa Electronic Markets (IEM)
  • Kansas City Board of Trade (part of CME Group)
  • Minneapolis Grain Exchange (MGEX)
  • NASDAQ OMX
  • NASDAQ Stock Market
  • National Stock Exchange (NSX: formerly Cincinnati Stock Exchange)
  • New York Mercantile Exchange (NYMEX: part of CME Group)
  • New York Stock Exchange (NYSE: merged with Euronext
  • OneChicago (OCX: joint venture of CME, CBOT and CBOE)
  • OTC Bulletin Board (OTCBB)
  • Philadelphia Stock Exchange (PHLX)
  • Pink Sheets (formerly the National Quotation Bureau)
  • San Diego Stock Exchange (SDSE)
  • US Futures Exchange (USFE)

US Electronic Exchanges

  • BATS Trading (Better Alternative Trading System)
  • Bloomberg Tradebook (BTRD)
  • Chicago Board Options Exchange Stock Exchange (CBSX)
  • Direct Edge 

According to the US Securities and Exchange Commission (SEC), there are further additions to this list currently under review. With so much choice across the US stock markets, it's vital to understand what represents a genuine value investment.

The Land of Opportunity

The United States hardly needs an introduction. This behemoth, in terms of almost everything - geography, commerce and natural resources particularly - is in a scale of its own. It is second only to China as the world's largest trader while this year it has surpassed both Saudi Arabia and Russia to become the largest oil producer, having become the largest producer of natural gas in 2013.

The USA has been the world's largest national economy since the 1890s. 132 of the 500 largest companies in the world are headquartered here; double that of any other nation. 

Even though the global financial recession arguably began with the US sub-prime mortgage and derivatives market crisis, its towering economy today casts a long shadow over all other single nation economies in the world. The US generates a quarter of the entire world's nominal GDP - $17.295 trillion as of Q2 2014 (Bureau of Economic Analysis). The US dollar dominates international transactions and global reserves, and is used as official or de facto currency by a total of 36 countries.

Despite financial positivity in trade and the strength of the dollar, recovery from the economic downturn of 2007-08 is ongoing and slower than was hoped for. The Federal Reserve downgraded its predicted US GPD growth for 2014 from 3% to 2.3% in June this year (an average of 2.1% yearly growth since 2009 - lower than during the post war years). The steady decline of unemployment figures, however - 6.1%, down from 10% at the height of the recession - is encouraging.

Key Industry Sectors

As the world's second largest manufacturer, the US' 2013 industrial output came to $2.4 trillion. This was greater than that of Germany, France, India, and Brazil combined. Main industries within this sector are petroleum, steel, automobiles, construction machinery, aerospace, agricultural machinery, telecomms, chemicals, electronics, food processing, consumer goods, lumber and mining. 

Retail is another huge sector. According to a Deloitte report in 2012, 32% of the world's largest 250 retailers (by 2010 sales revenue) were US-based. More impressive is that 41% of the total sales revenue of the top 250 was generated by that American 32%. This serves to support further evidence that Americans love to shop, with consumer spending currently responsible for around 70% of total US GDP.

Other significant sectors are energy and farming, followed by real estate and finance.

Learn how STRIDE would select US companies

Stock Markets and Indices

The mighty NYSE, by market capitalisation, is larger than Tokyo (TSE), London (LSE) and the NASDAQ combined. Average daily trading value in 2013 was approximately US$169 billion. 

There are so many stock exchanges across America - and with the list expanding and changing almost constantly through mergers and acquisitions - it's hardly surprising that this country is also home to the largest list of stock market indices in the world.

A stock market index helps investors understand market forces with greater transparency. Indices focus on a short list of businesses in any given sector, geography or price bracket. They serve as a measure to determine the state of the overall market and help investors compare returns on specific investments.

Indices create a value benchmark. When they were first created in the nineteenth century they enabled investors with more enthusiasm than financial knowledge to control their own portfolios. There are now indices covering every sector and subsector of pretty much every stock market around the world. Among the most significant American ones are:

S&P 500
Dow Jones Industrial Average
NASDAQ compositeRussell 2000
Wilshire 5000

How Safe is it to Invest in US Companies?

Investing independently is nothing new in the States. Indeed, the earliest stock market indices began helping facilitate the practice over 100 years ago. Of course there are scams here, as with anywhere. But a precautionary network of advice has evolved to help protect those investing without an outside adviser. 

There is section on the US Federal Government's OnGuard Online website devoted to investment scams and how to avoid them. The SEC also offers distribution of financial disclosures about listed US businesses via its EDGAR database.

There is a great deal of information on www.sec.gov. From the SEC website:

"The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, our investor protection mission is more compelling than ever."

Opening times

Normal Market Day

6 to 9:28 a.m. ET Pre-Market Hours
9:30 a.m. to 4 p.m. ET Regular Market Hours
4:02 to 8 p.m. ET After-Hours Trading

Half-Day Market Holiday

6 to 9:28 a.m. ET Pre-Market Hours
9:30 a.m. to 1 p.m. ET Half-Day Market Hours
1:02 to 5 p.m. ET After-Hours Trading

Market Holiday

Pre-Market, Regular and After-Hours Trading are unavailable.

There are nine market holidays in a year. They are:

  • New Year's Day 
  • Martin Luther King, Jr. Day 
  • Presidents' Day 
  • Good Friday 
  • Memorial Day
  • Independence Day
  • Labor Day
  • Thanksgiving Day
  • Christmas Day

 Market half-day holidays may include July 3 or 5, the day after Thanksgiving and/or Christmas Eve, depending on how the calendar falls in a given year.

Operations and Structure

Since K. Aufhauser & Company, Inc. offered the first online securities trading service via its WealthWeb system in 1994, online trading has mushroomed across the US and beyond. Trading fees and commissions vary between platforms and it's worth doing your research to find the right tool for you. 

Among the most popular currently are Scottrade, TD Direct Investing, Selftrade, Boom and Saxo and there are many more.

Trading need-to-knows

Fees

With so much competition now in the online trading market place, brokerage fees and/or commissions are lower than ever before. Be careful for hidden charges, however, particularly when it comes to custodian fees and commissions charged for converting any dividends back into your local currency from US dollars. These can be high so it's worth checking your options for receiving returns in dollars and converting them yourself elsewhere.

W8-BEN

The W8-BEN form is provided by the Internal Revenue Service (IRS). It allows non-US persons to receive a reduced rate of taxation on any US-sourced income. For the purposes of share-dealing, US-sourced income refers to income (dividends, interest etc) received from businesses registered or incorporated within the US.

Without a W8-BEN form, you won't get paid.

Pick Your Apples Carefully

The US is the most established market place in the modern world. It's the largest, the richest, the most famous for the biggest crashes - and the one via which Warren Buffet became one of the world's wealthiest men.

Get your tax implications in order, shop around for the best trading platform for you and you're almost ready.

With so many strong businesses across so many sectors, opportunities abound.
Just make sure you stick to 3D VI principles and select long-term investments in companies that demonstrate great value. 

Learn how we've made 19.25% every year for 14 years with international 3D value investing.

 download-our-3d-value-investing-triangulating-the-best-investment-targets

Topics: 3D Value Investing, International Investing, Independent Investor

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3D Value Investing: Triangulating The Best Investment Targets

3D Value Investing uncovers the best businesses for investment, the fair value of those businesses and the best times to buy in and sell out. This approach to long-term investing results in higher returns with lower risk.

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