<My point is this; when you own common shares you own a business that has value;>
I agree 100%.
< Its value does NOT change with its market price >
I agree 100%.
<(but it will increase in line with growth of GDP). >
Yes that is on average 3-4% per year. But it can also decrease or stagnate in line with GDP in time of recessions. We are coming out of a string of high growth years due to excessive monetary and fiscal stimulation. The pendulum will swing.
<If the market price drops 30-50% as you predict it will be the same business.>
Depends on the sectors.. Nortel, WorldCom, Alcatel and many others are no longert the same businesses.
< If that happens it is CASH (i.e. the very fiat you talk about) that has become more valuable. Why should that happen ? >
Cash will certainly be more valuable than many stocks. But it will still be fiat. Good businesses will remain, but their stock prices will reflect the new reality.
>Conversely, like everyone else's, the price of my equities >has been increasing lately !
Sure. There are always bear market rallies. But does the prices of your equities truly reflect the value of their underlying business.
> To me the value of the businesses has not increased, it's > just cash falling in value !
A good point. But I don't think that the value of cash will fall that fast. In the end, all paper currencies go to zero, but this is a process that matures over decades and centuries.
> I can see lots of reasons why THAT could continue !
In the very long run, I agree with you. But not over the short term. Stocks (as measured by S&P) are still 300% higher than just 15 years ago. The GDP growth and devaluation of cash do not explain this I think. At best, they would justified stocks being 150-200% higher.
Since markets have always moved from states of overvaluation to periods of undervaluation, I think that it will happen again. We will have sub 10 P/E on the major averages.
<But like CONDOR, I'd better leave such matters to greater minds. >
I disagree. You must use your mind, think hard, read a lot, analyse and investigate if you want to take the best decision that will protect and hopefully grow your capital.
The DOW Jones was 1000 in 1966, it was 600 in 1982. |
