Dear Paul Senior,
>W. Crimi: Thanks. Some very nice links there. For me though, way too
>much bearish sentiment and too much emphasis on macro stuff. Are you >too >scared to make money? -g- Paul Senior
I am sorry for the sentiment. I call them as I see them. Stock prices are higher now that at any time in history no matter how you slice it.
The historical record could not be clearer. These are the highest PE ratios of non-depressed earnings in American History! We are presently 15%-20% above 1987 and 30% above 1929 on a PE basis. True, inflation and rates were higher in 87 but they were both lower in 29.
Worse, earnings quality is also very suspect due to stock option compensation (which is not expensed), merger accounting gimmicks, and operating costs being moved to the "one time charge" line. There is an excellent article about earnings quality in the March 23, FORBES. You can get to it from my page (news). Barrons also did a number on Disney this week. Since Value Investing is about finding very good deals, it is hard for me to imagine many competent value investors being very enthusiastic about this environment. I still have some investments in the U.S. But they were mostly made years ago at very attractive prices. Most recently (last year) I was finding terrific values in Europe. All have since advanced very significantly. Values are equally difficult to find in Europe now also. The macro stuff is sort of essential even though I don't particularly like writing about such matters. Asia is a very big deal and I believe the crisis is still very much in progress. Current stock market rallies are basically an irrelevant event. All the economic news out of the area is horrid. When events of this magnitude occur, you just have to pay some attention. Asia represents 30% of world GDP. There are also all sorts of banking and derivative issues which have yet to be resolved.
So I am sorry about the bearishness. It is not a market call. It is valuation call. I am not afraid of making money, I am afraid of losing it. You can't make much money paying more for a business than it is worth, but you can lose some. Remember Warren Buffett's 2 rules.
1. Never lose money.
2. Never forget rule number 1.
By the way, I am a shareholder of Berkshire Hathaway since 1988. When it was a terrifically undervalued stock. |
