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Politics : Ask Michael Burke
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To: BGR who wrote (48195)2/21/1999 6:49:00 PM
From: Tommaso  Read Replies (1) of 132070
 
"valuation is best left to the market which invariably gets it right on the average in the long run"

That is exactly the point. But there are times when the market is not getting it right, and there are measures to judge these times.

I have never recovered from being able to buy Royal Dutch Petroleum at a P/E of 3 and a yield of about 8% back in the 1970s--by which I mean very few such obvious bargains have ever come along again. And no such obvious non-bargains as Amazon at a P/E of infinity and a gain of some 20-fold in a year on pure speculation.

The market,as you say, straightens these things out in the long run.

When John Templeton began investing in japan it was easy to pick up stocks at P/Es of 3 to 6. When he got out they were at 30 to 60 and much higher. And the underlying earnings had greatly increased, meaning a gain of in some cases fifty times initial investment.

This is not market timing. This is evaluation timing. You never know when the market will turn but one can judge to some extent when stocks are undervalued or overvalued. Even Burton Malkiel, that greatest of the Random Walkers, agrees with that.
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