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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 (122)	4/2/1998 1:28:00 AM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

<< ...over time (sometimes years) an economic system and stock prices will tend to move toward balance and equilibrium. In other words the system will revert to the mean. That "mean" is at substantially lower multiples of earnings and lower returns on capital than exist at present. In short, we are not only facing a decline in PE ratios, we are facing a decline in profitability levels at some point in the future. >> I completely agree that the cost of capital and the return on capital must tend toward equilibrium. But, I also believe that over time the productivity of both capital and labor increase, due to all the obvious reasons surrounding advances in technology and education. Therefore, I believe that this convergence of asset prices and asset returns will be at some level determined by the economic, political, social, and technological conditions of the future, not those of the 1920's, 30's, 40's, etc.