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Strategies & Market Trends : Value Investing

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To: J Mako who wrote (45494)	11/16/2011 1:26:51 AM
From: Jurgis Bekepuris	Read Replies (2) of 78702

But I suppose everything is relative and there is a price for (almost) everything. Paul Senior keeps making this point to me periodically. :) If the P/B has gone down to 0.5, then a 8% ROE to the firm will become 16% to a shareholder. Yes, but it's not exactly the same. ROE is still 8% to the firm and it can only use the 8% (instead of 16%) to invest in growth/dividends/etc. ;) If you look at longer term, the fact that you bought a 8%-earner for 50% cheaper than 16%-earner costs you in compounding. Here's the table - buying 100-20% earner for 100 and buying 200-10% earner for 100. And results in 10 years: 100 0.2 <- bought for 100 120 0.2 144 0.2 172.8 0.2 207.36 0.2 248.832 0.2 298.5984 0.2 358.3181 0.2 429.9817 0.2 515.978 0.2 619.1736 0.2 200 0.1 <- bought for 100 220 0.1 242 0.1 266.2 0.1 292.82 0.1 322.102 0.1 354.3122 0.1 389.7434 0.1 428.7178 0.1 471.5895 0.1 518.7485 0.1 Obviously this does not matter much for 2-3 year investors

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