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Strategies & Market Trends : Buffettology
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To: Robert Douglas who wrote (308)9/22/1998 2:49:00 PM
From: cfimx  Read Replies (2) of 4691
 
you're buying a bond today with a 20 p/e. that coupon is not going to grow in 20 years. Is is certain, but will not grow. what if you could buy G for a p/e of 20? wouldn't that be a bargain, since one could reasonably expect with certainty that those "coupons" would grow at somewhere between 5 to 15% rates? It is not such a leap then to realize that you would expect to pay MORE than 20 x for G, if your alternative was only 5% fixed coupons, year in and year out. The bond coupons are taxable and holding the appreciation of reinvested earnings in G is not. If it makes sense that you would logically HAVE to pay more than 20 x earnings for G, then it is not a stretch that you would pay 25 x (25% more than you would pay for a static bond),which is about where the thing trades now. Overvalued? Hardly. Armagedon doesn't come round that often.
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