Here's a good illustration of what these guys think about valuation. I asked a question about the overvaluation of the market in general, and of some stocks in particular, and this is the reply that I got from one of the fools (this is dated about 8 months ago) :
"If you read 'Stocks For The Long Run', by Jeremy Seigel, you will find that if you bought the Nifty Fifty at its high, 20 years later you would have outperformed the market. The simple fact is that over long periods of time, companies that can grow their earnings above the rate of the market will outperform the market given the almost perfect correlation between earnings growth and stock price appreciation. Over long periods of time, earnings growth and stock price appreciation converge, regardless of the initial valuation. " [emphasis mine]
Excuse me, but I have a few stupid questions : If you had invested in the market at or near its high (say on Jan 1, 1973), it would have taken you all of six years (until the end of 1978) just to break even. Now, how long did it take the Nifty Fifty to break even? I suspect it was another 4 to 6 years at least. And when inflation is raging at 10% to 12%, you expect your foolish investor to actually hold his stocks, when his portfolio has underperformed the S&P 500, whose returns are themselves anemic? And what's more, when CDs and Treasuries are returning 10, 12, 14, 17% year after year, even as his stocks are going nowhere, if not actually going down? Heck, even if I had the wisdom, the discipline and the courage to buy at the bottom, I would begin to have serious doubts!
Another outrageous statement that these fellows make is that the rate of appreciation of the market over the last few years is not very far from historical norms! I think these guys are like the Pied Piper of Hamelin, and are going to lead a LOT of lemmings to the river! |
