For me investing comes done to several things. The value in the investment itself, the quality of the investment, and the time horizon of the investment. These three things can be used in technical analysis or fundamental analysis.

Value comes down to the risk reward of the investment. For technical analysis it is your target price based on whatever you see the stock going to versus the risk that you are willing to take. For fundamentalist it is more about the target price and applying some form of margin of safety to your analysis.

Qualityis more about the characteristics of the company from a fundamental perspective. This refers to the debt levels, cash flow, management. For technical analysts, quality can be drawn from the predictability of the indicators being used. Also the quantity of indicators signaling the same potential outcome.

Time can range from day trading to looking 3 to 5 years out. I prefer intermediate time frames such as 6-18 months. This allows for me to be opportunistic.

So how does Europe have to do anything with this...

I keep hearing a ton of investors talk about just how attractive Europe is, and I just beg to differ. It is not that I do not see some opportunities, I just think those saying Europe over US seems illogical. Here is my main issue.

When it comes to value on a forward looking basis Europe does not offer as much value as everyone is saying. The chart below highlights the breakdown of global valuations. The S&P 500 is trading at 17.53 times next years earnings. This compares to MSCI Europe of 16.11, a modest 8% premium. The second chart compares the S&P 500 vs the Euro Stoxx 600 on a 2 year forward looking basis. The US is trading at a low 4.4% premium.

Now some make the case for QE as the reason for investing in Europe. This could be a reason, however the ECB already has a higher balance sheet as a percent of GDP when compared to the US. To me this reduces the quality of the investment. Now looking at some other factors such as employment in Europe, the aging population, and risk of deflation, create additional risks. These risks and lower quality characterstics should equate to a higher risk premium.

To me a prudent fundamental investor would look at broad Europe with a sense of pause. No true valuation gap exists, and the launch of QE at this starting point decreases the quality of the assets. From a technical perspective there are some plays here, Luxottica broke out last month giving an opportunity, but other than specific cases, no need for me to participate in a broad sense just yet. What do you think?