<< If however, earnings were to fall and PEs were to decline to average and stocks fell to 4000 and stayed there for a while ... Would you consider Mr. A vindicated/correct from a general market "Value" point of view. >>
AA's, unedited, statement was: "[T]he same tide that carried the financial markets to such splendid gains from the final months of 1990 to the start of 1994 has turned and is powerfully running the other way."
The statement, imo, was mistaken, based upon more than three years of subsequent experience. Admittedly, it's much easier to track Mr. Market's travels, and trevails, through the rear view mirror than through the windshield. But, I don't consider that a stopped clock is
"vindicated/correct" because it will eventually, and only briefly, coincide with the correct time.
The Economist piece was thoroughly flawed in its logic.
Investor2: Save your time. You correctly perceived that it's the same-old, same-old, to wit, "Good times precede bad times. Times are good. Therefore, bad times are just around the corner."
Well, yeah. A lot of people are in the peak of health just before having some awful illness. And, one way or another, none of us are going to live forever, and neither will the Bull Market. But, the fact that times are good and that one is in the peak of health is not a basis for whether or not to cash out of the Market.
<< Keep in mind that I am making the assumption that timing is IMPOSSIBLE. Only valuation is possible. >>
We have a fundamental disagreement here. The distinction between timing and valuation is something of a distinction without a difference, as a practical matter. Valuation is a way avoiding serious errors in timing, but it does not eliminate the essential problem: Investment returns are measured as a function of dollars in relation to units of time.
Graham and Buffett both recognized this problem. Graham's timing was disasterous going into the Great Depression. He bought Value hand over fist (on margin!) after the Crash of 1929. He wound up spending 5 years working without fee to rescue his clients' portfolios from what was correct valuation, but mistaken timing.
Buffett acquired great Value when he acquired the Berkshire Hathaway textile mills. But, as he eventually admitted, his timing was about 1/2 a century too late.
The GADR Model Dow Value (http://web.idirect.com/~telcomm/model.htm#The Public List) has two components, BA and GM, which illustrate the problem.
This is the Value "story" on Boeing: Suppose there were only two auto companies in the world, or only two PC makers, or only two chip makers, or only two telcos. And, also suppose that one of the two was owned and managed by four Socialist-led Western European governments facing increasing labor strife that is not soon going away. In the case of jumbo jets, Boeing is the one that is run by successful union-busting capitalists.
All of this Value is off-financial-statement. But, it's there and it's real.
Nevertheless, Mr. Market may wind up taking his sweet time in recognizing Boeing's Value, while Indexers get their Value priced up-front going out five to ten years. This may just be the wrong time to pay for Boeing's Value.
Unlike Boeing, GM isn't about unrealized future Value, it's about unrecognized current Value. It's cash + breakup Value make the world's largest auto and truck maker practically "free", from a Value viewpoint. Yet, GM's current free cash flow is being priced by Mr. Market like the interest yield on the junk bond of a penny stock. As I've written, Mr. Market may wait until after the next recession to recognize GM's Value. If my macro view is correct, such a wait-and-see policy by Mr. Market would mean that this is the wrong time to pay up for GM's Value.
However, at the rate GM is buying back shares, in another decade or so there will only be one share of the GM common left outstanding. Whoever owns that share will be able to sell it to Mr. Market for substantially more than GM's current price of 68 and change. That someone might be porc.
porc --''''> |
