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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (96)	3/19/1998 5:27:00 PM
From: porcupine --''''>	Respond to of 1722

Wayne on porx 3rd Era thesis: I do not subscribe to a 'new era' of anything at any time. I believe "all is as was", generally. The names have changed and investors are more sophisticated, but all else is equal. The same consumer bargains that existed for Buffett existed for Graham. He just did not recognize them because he was unwilling to pay up for a franchise/goodwill. They were there though. The type of bargains Graham looked for also show up at times today. I have seen recent screens of Graham's criteria in the Intelligent Investor produce lists of candidates until very recently. The arbitrage cases show up regularly I would presume. There are several funds that are run today that use just Graham rules. Also, it is true that most inflationary periods were caused by wars, but some were caused by other things (e.g., monetizing the oil price increase.) A new one can also be caused by a falling currency. This is clearly not out of the question considering our large and growing current account deficit and resultant massive capital recycling requirements to keep the dollar stable. This can lead to a problem at any given time. Just like in 87 (and, I believe, in 94), at the very least the probability is increasing as the foreign holdings pile up and the current account deficit grows. I would also ask, how many people in the 30's thought inflation in the 40's was going to be a problem? Nobody foresaw WW1 or WW2 until it was close to obvious. How many people saw Vietnam in the low inflation period of the late 50's? My guess is zero on all accounts. My point being that if perfection rules the day you will be correct about inflation being low, zero or even negative. That has always and everywhere been the case. It is nothing new. It is just that every period of inflation was preceded by a time that most observers would have bet that inflation was dead because all those events that cause inflation were and continue to be unpredictable. If you believe war, oil embargos, currency crisis, monetary error, etc., have been outlawed, then you are correct. If you have a crystal ball that tells you we won't have any of those for 10 years or more you are right. My guess is that we will have stable prices (zero inflation +/- 2%) -- unless one of those unpredictable things occurs. Then I will be wrong. That is not a 'new era'. That is good fortune. I am hoping for good fortune, I won't pay for luck and I don't think luck constitutes a 'new era'. Lastly, prior to 1913 we had no central bank and less credit expansion and money printing as an ongoing process, etc. Anything prior to 1913 is completely irrelevant to today. The inflationary period began in earnest when we got a central bank. The gold inflations were temporary and reversed. There is only 1 era in my mind: "The present value of the future earnings stream discounted at an interest rate that is appropriate to the risks and certainty of the projections." That was the golden rule in the 30's, 40's, 50's, 60's, 70's, 80's and it is still the rule in the 90's. The only thing that has changed is that we are valuing micro-chips instead of buggy whips. Wayne