High Price/Earnings Ratios and the Stock Market: a Personal Odyssey
After some forty years of banking and investments, I retired in 2001. But since I do not golf, I soon found retirement to be very boring. So I decided to return to the investment world after ten months. However, those ten months were not a complete waste of time, for I had spent them in trying to utilize my forty years of investment experience to gain perspective on the most recent stock market "bubble" and subsequent "crash."
There were several people who saw the stock market crash coming, but they had different ideas as to when it would occur. Those who were too early had to suffer the derision of their peers. It was difficult to take a stand when so many were proclaiming that we were in a "new era" of investing and that the old rules no longer applied. Since the beginning of 1998 through the market high of March 2000, among 8,000 stock recommendations by Wall Street analysts, only 29 recommended "sell."
I happened to notice one day that, in its "Market Laboratory," "Barron's" had inexplicably changed the P/E Ratio of the S&P 500 to 28.57 from 40.03 the previous week! This was due to a change to "operating" earnings of $39.28 from "net" or "reported " earnings of $28.31 the previous week. I and others wrote to "Barron's Mailbag" to complain about this change and to disagree with it, since these new P/E ratios could not be compared with historical P/Es. "Barron's apparently accepted our arguments and, about two months later, changed back to using "reported" earnings instead of "operating" earnings and revised the S&P 500 data to show a P/E Ratio of 45.09 compared to a previous week's 29.64.
But a similar problem occurred the next day in a sister publication to "Barron's." On April 9, 2002, "The Wall Street Journal" came out with a new format that included, for the first time, charts and data for the Nasdaq Composite, S&P 500 Index and Russell 2000, in addition to its own three Dow Jones indices. The P/E Ratio for the S&P 500 was given as 26, instead of the 45.09 now found in "Barron's." I wrote to the WSJ and after much correspondence back and forth, they finally accepted my argument and on July 29, 2002 changed the P/E Ratio for the S&P 500 from 19 to 30! I had given them examples showing where some financial writers had inadvertently confused "apples" with "oranges" by comparing their P/E of 19, based on "operating" earnings, with the long-term average P/E of 16, based on "reported" earnings.
Because I started to be cautious about investing as early as April 1998, since I thought that price/earnings ratios for the stock market were perilously high, I was not hurt personally by the "Crash of 2000" and had tried to get my clients into less aggressive and more liquid positions in their investment portfolios. But the pressures to go along with the market were tremendous!
Price/earnings ratios do not enable us to "time the market." But comparing them to past historical performance does enable us to tell when a stock market is high and vulnerable to eventual correction, even though others around us may have lost their bearings. High P/Es alert us to a need for caution and a conservative approach in our investment decisions, such as a renewed emphasis on dividends. Very high P/Es usually indicate a long-term bear market may ensue for a very long period of time. We are apparently in such a long-term bear market now. But in determining whether the market is high, we must be vigilant with regard to what data mambers of the financial press are reporting to us, so we can compare "apples" with "apples." When the financial information does not appear to be correct, we, as financial analysts, owe it to the investment community to challenge such information. That is what I have concluded from my personal "odyssey" in the investment world.
After three years of the DJIA and the S&P 500 closing below their previous year-end figures, the market finally closed higher at the end of 2003. But the P/E ratio is still high for both indices.
Does anyone see any icebergs?
^V^ Written by :-
Henry V. Janoski, MBA, CFA, CSA is a 1955 graduate 'magna cum laude" of Yale University and a member of Phi Beta Kappa. He received his MBA in finance and banking from the Wharton Graduate Business School of the University of Pennsylvania in 1960 and holds the professional designations of Chartered Financial Analyst (CFA) and Certified Senior Advisor (CSA).
“烂”是指公司烂了,也就是公司亏蚀越来越大,最后走向破产。
“跌”是指股票的价格下跌。 凡是买股票的,无不谈“跌”色变。
无论是投资或投机者,都会畏“跌”如畏虎。 股票投资如用兵,兵败如山倒时,谁不魂飞魄散?
“跌”诚然是可怕的。对我这种长期投资者来说,有比“跌”更可怕,而且可怕十倍的。那就是“烂”。
股票就是公司的股份。 股份的价值,长期来说,决定于公司的盈利表现。
如果公司的生产越做越大,越做越火红,盈利一年比一年多,那么,股份就会越来越值钱,股价就会持续不断的上升,你的财富也会与日俱增。
如果公司的生意越做越萎缩,年年亏蚀,而且亏蚀额越来越大,最后可能面临破产的噩运,则股份的价值,必然一跌再跌,最后可能使你血本无归。
在短期内,股票的价格会受到股市走势或人为操纵的影响,波动激烈。但长期来说,股价必然与公司的业绩同步,也就是说,股价必然会反映公司的业绩,只不过时间上有迟早之分而已。
如果我们以偏高的价格买进一只好股的话,当股市崩溃时,它的股价也会跟着下跌,投资者也会蒙受亏蚀。如果你是长期投资者,你不理会股市的起落,紧握你的股份不放,当公司的盈利一年比一年多时,股份的价值就会跟着上升,你会反亏为赚。
投资致富最佳途径 . . .
如果你是低价买进好股的话,就会赚得更多。 这是靠股票投资致富的最佳、最稳当的途径。
世界上许多富豪,都是这样致富的,1968年世界首富保罗盖帝,当今世界富豪华伦巴菲特,都是典型的例子。
让我举一个大马的例子说明:
大众银行(PbBank,1295,主板金融股)在1996年金融风暴前的股价最高为4.64令吉,最低为3.04令吉。
假如你在1996年时以4.64令吉的最高价买进一千股(面值50仙)收藏至今,在收取五次红股及认购一次附加股之后,目前拥有一千九百五十股(面值一令吉),以今天9.60令吉的价格计算,价值一万八千余令吉,等于十年前投资额的四倍,假如把历年收到的丰厚股息也计算在内的话,赚了超过五百巴仙。
请注意,你在1996年时是以当年的最高价买进,仍能取得五百巴仙的盈利。如果是以当年最低价3.04令吉买进,就赚得更多。
大众银行在1998年金融风暴时曾一度跌至0.81令吉,如果你以此价买进的话,你将赚十倍以上。如果你继续拿下去的话,将来肯定能赚得更多。
大众银行的盈利,年年上升,是使你即使高价买进,仍能反败为胜的主要原因。
在十多年前,当第二板的股票,都被炒到十令吉以上时,我的朋友以十令吉的价格,买进一千股开屏(KaiPeng,8796,二板贸服股),坚守至今,由于该公司连年亏蚀,股价一跌再跌,今天只剩二分。
切勿低价买坏股 . . .
同样是高价买进,持股期限同样超过十年,买好股和买坏股,结果有天壤之别。所以,散户宁可高价买好股,切勿低价买坏股。 当然,如果坚持反向策略,低价买好股,就可以赚得更多。
坏股即使低价,亦不可买,何况是高价。 低价买好股,使你盘满钵满。 高价买坏股,使你死无葬身之地。在金融风暴之后,数以百计的公司被列入PN4,纷纷破产或被除牌,受害者多数是投机的散户,可引为殷鉴。
“烂”比“跌”更可怕。 可怕十倍。
^V^
By now , u guys should know when to execute entry n exit point, n also what is cheap n worth for investment.
same old saying, u know it doesnt mean u understand it, u understand it doesnt mean u know how to apply in shares mkt.
Someone said, high PE stand 4 high prospect, aiyohh yoh samy samy oh samy... I think u should polish yrself b4 u bring newbies to :Holland : !!
Think a little, if repco selling 2 u @ PE >100 n Kai Peng @PE > 58 in year 1998 stand 4 high prospect ?
One good example "China Mkt :- SSEX @ 5,500+ or PE >65 last Oct 07 ! what happened to her now ? still high PE stand 4 high prospect ? get yr facts right b4 u shame yrself with high PE stand 4 high prospect dude !
Need a second thought ?
2 all newbies n bros out there , know what messages uncle sam wanna to release 2 u guys from d above statements ?
Find it yrself.. I will disclose d answer by this coming 15 of April ^V^
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