It is interesting to ponder the thought that sometimes at trough earnings when doubt is at peak levels, multiples reach new heights in anticipation of an earnings recovery
but this would not be expected of PSRs, for example, if stocks are a "bargain". if the "E" in PE approaches zero, it is likely that the PE will be high. however, that must be compared against other valuation measures. in the early 1930s, PEs were high but PSRs were exceedingly low and the market still paid substantial dividends.
as for "this time", i do not think doubt can be considered at peak levels given the PSRs obtaining today, not to mention the PEs of some of the less volatile earners.
How about the strength of certain value chains and category leaders? Will Dell, EMC, Microsoft, Intel, Applied Materials, Siebel, IBM, etc... survive?
this is similar to the Nifty Fifty argument--find a company that will "survive" due to its strong market position. sure, survival is nice, even necessary. but it is not also sufficient to ensure good returns.
Value players would have been focused on small-cap tech over the past three months where gains have far outpaced the large caps and market multiples were quite a "bargain"
yes, that is because the small companies are more likely to go out of business. of the various equity categories identified by Fama and French, the worst performer over time has been small growth. this is likely due to its being expensive (growth) without being sure of survival (small). in contrast, large growth is expensive and thus has poor expected returns, but it is large and thus likely to survive. if companies you refer to were true value stocks, well, they fall into the best historical category according to FF--small value, which outperformed other categories adjusted for risk.
Nifty Fifty in aggregate, purchased at their heyday multiple heights and held through to today have beaten the S&P.
as long as you didn't mind severely underperforming small value and commodities, throughout the rest of the 70s, and underperforming equity markets as a whole (as well as bond markets) for more than two decades. this length of time starts to approach the realistic investment time horizon for many investors. not to say one shouldn't hold such stocks, but holding them alone can be quite risky as i have mentioned before.
also, it is worth mentioning that the Nifty 50 were much cheaper than modern large growth companies.
What really would have impressed me would have been for them to say they loaded up on shares of all of those near their lows as they saw value. Did they buy Microsoft at $40, Intel at $18, Cisco at $11, Dell at $16, Siebel at $12, Brocade at $12, IBM at $80, etc...? No way.
i don't really want the job of defending them--i'd rather just discuss the issues, but i will mention that one of their funds is up some 29% this year compared to double-digit losses for most equity indexes, and 32% loss for the NDX100.
as i mentioned to uf, valuation tools are not market timing tools. also, before i forget, that article is just a daily blurb they put up. there's a new one each market day after the close. their philosophy is described in much greater deal on their website under the article "LIMBO LIMBO, HOW LOW CAN IT GO?" located on the right side of the home page, although this URL might take you there directly: comstockfunds.com |
