This (WSJ: Decline of PE Ratio) is a pretty fluffy article...
However, the key implication is that more and more investors may be turning away from valuation in an effort to predict the macro-environment. This is encouraging news for bargain-hunters like myself.
I worry considerably about the macro-environment. However, as one investor once said, 'philosophize macro; invest micro'... as more investors worry about the macro-environment, I firmly believe that stocks will become cheaper and cheaper. Once PE reaches 6x (1949) or 7x (1974), then it will be time to buy again... and buy alot! Whether deflation or inflation, once valuations reach that levels I believe we should buy the best companies America has to offer (ie Coke, Proctor Gamble, Johnson & Johnson, Intel, etc.), as it's difficult to imagine a world without their products... and if such a world existed, I'm not sure I would want to be around to see it!
Currently at 12x-14x PE, I would want to see stocks fall by at least 50% before I'm ready to confidently say its time to buy. In fact, considering that earnings will likely decline (considerably) in some future scenarios, we may well see a decline of greater than 50% before prices become truly attractive. Buckle up!
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