A horse last weekend in October, when the American stock market indices have fallen back to the minimum of 10 October and those in Europe and Asia have sunk further down, I again bought shares . And also something I bought last couple of days. At moments of maximum distress and fear, I took note of what he was doing the mass and I adjusted accordingly: I did the opposite. In my portfolio of financial assets, equity securities, which had drastically cut to 15% in the first half of 2007, have thus come to constitute a share of 55%.
For my age, economic status and risk tolerance, it is a ' allocation or poor or exaggerated just a bit' lower than normal. In technical jargon, I remain underweight . However, I am much more inclined to take on risks than it was in the years that preceded the recent stock market crash.
Why are entered, with both feet, in the meat grinder of these markets with high volatility , capaci di salire o scendere del 20% nel giro di pochi giorni? Sprezzo del pericolo? Sventatezza? Irrefrenabile pulsione speculativa? Non direi. Ho solo agito secondo la visione strategica che avevo abbozzato, a metà ottobre, nel post “ Punto di svolta .”
In quell’articolo raccontavo, a grandi linee, cosa mi aveva indotto, alla fine delle quattro tumultuose settimane che avevano fatto seguito al collasso di Lehman Brothers, a lasciarmi alle spalle la pessimistica attitudine che da tempo nutrivo nei confronti delle Borse fino a convincermi a dare il via a un graduale piano di accumulazione .
Volendo riprendere quelle osservazioni in modo un po’ more systematically, I would say the turning point in my investment strategy rests on two pillars: assessments of markets and psychology of investors. Not cheap, as are the two factors that most contribute to determine the evolution of prices in the long run. Both of which were negative, became positive - at least, so I think - in short span of time.
I will focus here on the assessments, leaving the psychological considerations of a future article.
For the best value investor markets are undervalued
The idea that equity markets, after halving suffered last year, have returned to be valued on a winning is not mine. E 'of several of the best value investor in the world.
is convinced, for example, Warren Buffett , which in a article for the New York Times of October 16 he wrote: "If prices continue to remain attractive, my personal portfolio (not includes its share in Berkshire Hathaway, ed) will soon be 100% invested in U.S. stocks " (until a few weeks ago was fully invested in government bonds, ed.)
"Bad news is an investor's best friend , "said Buffett, pointing out what has always been his rule: " Be fearful when others are greedy and greedy when others are fearful. "
The fear at the moment, is widespread enough to paralyze even the most experienced investors - known Buffett. Yet "concerns about the prosperity of many sound companies make no sense."
concludes: "Let me be clear on one point: they are not able to predict short-term movements in the stock market. I have not the foggiest idea whether these will up or down in the next month or next year. What is likely, however, is that the market will rise, perhaps significantly, well before the investor sentiment or the economy start to improve. "
Del found appeal of the actions recently wrote in his Quarterly last letter to investors, even Jeremy Grantham, another tutelary deity of value investing.
For the first time in more than fifteen years - Grantham note - the U.S. market has fallen below its fair value (fair value ), which he estimated at about 975 points for the index S & P 500 . Are even more undervalued emerging markets and Europe.
Nevertheless, there is in Grantham, much more than Buffett, also an accentuation of the reasons that continue to cause him a degree of caution. The
value investors tend to anticipate the turns in the market, sometimes even too. They see before others the emergence of unjustified excesses, whether of overvaluation or undervaluation. Give more attention to the irrationality of rationality that many are willing to chase bubbles and depressions. So end up sometimes to dive into countercurrent when the tide of those who purchase with avidity close to the maximum and minimum close to selling with abandon is still rising. Historically
note - Grantham - the great stock market bubble , characterized by protracted periods of extravagant overstatement, they closed with a crisis (the Great Depression of the '30s, the oil crises of the '70s) who made investors sink in opposite ends of killing and defeatism. The equity markets have come to tap excess underestimation to 50%. For this reason
Grantham is concerned that the bottom of the bear market has not yet been reached and that in the coming months there will be a final wave of declines that will push the S & P 500 to minimum set in a large range between 600 and 800 points.
However, it is unlikely practicing the art of prophecy of the future that you think may have happened as investors, but aiming the bar on the more reliable reference of the current market assessments in relation to those long-term historical.
Having an idea of \u200b\u200bwhat are the excesses to which the market can be let go is useful, Grantham notes. Teach to have caution. But it can not be the basis for an investment strategy. For a value investor, this is the cornerstone value. In short, said with sincerity, "if the shares are attractively priced and you do not buy and then run away prices to the upside, is that you end up not look like an idiot: you are!". Grantham, therefore, is buying but in a prudent and gradual.
value judgments well thought
Who, perhaps best of all, explained what premise is based on the renewed optimism value investor, however, was John Hussman, an investor of the new generation whose funds over the past decade have had an extraordinary success, achieving annual returns of at least ten points higher than the market.
In his weekly letters
Hussman has recently pointed out that - at least the last month - the index S & P 500 has fallen to a multiple of profits ( P / E ) of just 10 times, compared to a historical average of 14.
must be understood here. The useful Hussman which refers are not those expected by analysts or than it had last year (all of the measures they usually cite) but the maximum of the cycle (the so-called peak earnings, which are the most high recorded within the reference time in over four quarters). What
senso ha questo peak earnings P/E ? Come ho più volte scritto nel mio blog, il problema più grave nell’utilizzo di uno strumento di valutazione come il multiplo degli utili sta nell’enorme volatilità degli utili stessi, che nel corso di un ciclo economico hanno la tendenza a crescere a tassi anche superiori al 20% annuo nella fase espansiva per poi crollare magari del 50% al precipitare di una recessione.
Come si possono trarre delle affidabili indicazioni di valore del mercato, se la base di valutazione è così instabile? Sarebbe come se mia moglie, che di professione fa l’architetto, si mettesse a misurare case con un elastico.
Per rendersene conto basta look at the following chart, taken last week letter of Hussman, which is represented the evolution of the profits of the S & P 500 since 1950.
From the top of the latest, reached in mid-2007, followed - and should not have been surprised! - Five quarters of declining profits (the last, the third in 2008, is known to be negative but is not represented in the graph as the results are still being published). The typical ups and downs around an ideal and far more stable slope (the one identified in the chart by the red line that connects i vari picchi) è insomma continuato. Nihil sub sole novi.
Naturalmente, dagli abissi attuali – o dei prossimi trimestri – è altrettanto probabile che poi si risalga. E un investitore accorto ne dovrebbe tenere conto nella propria strategia, così da evitare di essere sviato dalla miopia dei più.
Per fare un esempio, che senso può avere che il titolo di una grande azienda di successo crolli magari del 5% o 10%, com’è accaduto a più riprese negli ultimi giorni, in seguito all’annuncio di una revisione al ribasso delle stime per il prossimo trimestre? Un trimestre o anche due di utili dimezzati può incidere di una frazione di punto percentuale the fair value of such a society (which is calculated based on the reasonable expectation that it continues to exist and to generate profits for its shareholders for several decades).
The unreasonableness of many investors, plus the cyclical earnings volatility, call for a naive use of the P / E . Unsustainably high profits tend to depress P / E while profits rise unsustainably make them depressed. It should perhaps conclude that the shares are undervalued near the peak of the cycle and overestimate the bottom of the recession? In truth, the opposite is true in general.
The solution to this paradox, that investors attentive to the value we have endeavored to try since the time of Benjamin Graham - Warren Buffett's teacher and founder of value investing - lies in the standardization profits.
In short to draw some measure of profits that is not foolishly adopted by the calendar (the last quarter, the last year, etc.). Nor is it even worse, artfully swollen by the needs of the industry's marketing investments (as is often the case with the expected earnings). A good measure should instead take into account what really matters, namely the economic cycle so as to be, over time, stable and reliable a fini di comparazione.
Hussman, nella tradizione del value investing , questa soluzione l’ha trovata ideando il peak earnings P/E , la cui genialità, oltre che nella facilità di misurazione, sta nel fatto di assumere come parametro di base per la stima del valore i punti via via più prossimi all’andamento costante della retta rossa del nostro grafico anziché le volubili, inaffidabili evoluzioni degli utili da un trimestre all’altro.
Come il grafico evidenzia, quella retta rossa ha due straordinarie caratteristiche, che in verità si estendono ben oltre l’arco di sei decenni lì rappresentato (e ben oltre il solo mercato americano) to cover the nearly two centuries of data at our disposal:
a) regardless of wars, financial crises and technological revolutions, that line has so far acted as a tireless magnet on the trend of profits in the long run. Where profits if they turn away, her attraction grows more strong, anchoring to a path of steady growth. Metaphors aside, that line shows how strong the tendency of profits to regress toward the mean ;
b) the slope of the line is stunning in its stability draws a earnings growth of 6% per year . And if we take into account the fact that to achieve this rate of growth companies have historically reinvested about half of their profits, the remaining half distributed to shareholders as dividends or share buyback, that's solved the mystery of the constancy of equity returns over the long term, around 9 - 10% per annum in nominal terms.
last decade yields were close to zero? No wonder. In the light of history, was widely expected. Investors have paid the excesses of the previous two decades, when the shares were twice the average yield (18% per year from 1982 to 1999 in a wild climb that deceived even the most makeshift of investors have discovered in himself the genius of finance).
Without these assumptions about the meaning and utility of using a meter so reasonable as peak earnings P / E of Hussman, we are ready to see it in action in the two graphs below. The first, taken from a letter dated January 2008 , represents the peak earnings P / E (blue line) from 1940 to the end of 2007 (ten months later, not represented here, the P / E has dropped from 15 to 10 ) ... ...
while the second, because older taken from a letter dated February 2005 , gives a representation of the longer term, from 1870 to the end of 2004.
As I have already noted, the P / E of Hussman, to rates last month, has fallen to a multiple of 10 times compared to a historical average of 14.
The U.S. stock market is so undervalued (Hussman for even more than for Grantham). But enough is undervalued? A look at the charts reveals that the P / E has ranged from minimum of 6-7 and maximum of 20, with two glaring exceptions : the recent bubble of the century, who flashed out toward the stratospheric multiple share 33 and the Great Depression of the '30s, when the multiple share fell even below 4. We note
poi un altro fenomeno, nel ciclico oscillare delle valutazioni attorno al loro livello medio: a periodi di sopravvalutazione hanno fatto immancabilmente seguito periodi di sottovalutazione, e viceversa. L’ottimismo ha generato altro ottimismo e infine euforia , il pessimismo ha generato altro pessimismo e infine disperazione . Nella disperazione sono stati piantati i semi di una rinata prosperità, nell’euforia sono germinate le condizioni del momentaneo sfascio.
Premesso che è ragionevole ritenere che questo ciclo ora si ripeterà, la domanda da porsi è: a che punto di negatività siamo arrivati col crollo di ottobre?
La risposta di Hussman è che – a un multiplo 10 - fall into pessimism, as has been rapid, is already at an advanced stage.
The repetition of a crisis similar to the '29 - so often and so superficially evoked by the media in recent weeks - it seems extremely unlikely.
Then the dominant economic thinking, with its ideologies and its stiffness, reacted by positioning in the defense of restrictive monetary and fiscal policies. The scope of the initial financial crisis turned out to be multiplied to produce an economic recession that the United States, lasted four years (compared to a maximum of 16 months for postwar recessions). The contraction of GDP fu pari, nel complesso, a un catastrofico 25%. La produzione industriale crollò del 45%, il tasso di disoccupazione arrivò al 25%, furono più di 5 mila le banche che chiusero i battenti con perdite enormi per centinaia di migliaia di depositanti.
Le ripercussioni fuori d’America furono anche peggiori. Collassò il sistema del commercio internazionale in una folle rincorsa a erigere barriere protezionistiche. La Germania, già destabilizzata dai trattati di pace che avevano messo fine alla prima guerra mondiale, andò in mano a Hitler e furono in tal modo poste le premesse per l’escalation di conflittualità che portò difilato alla seconda guerra mondiale.
Oggi la reazione alla crisi finanziaria was marked by the collaboration between governments and monetary authorities at the global level centered on massive government intervention in support of credit and economic systems.
A comparison with more realistic situations acute crisis can be done by looking at the period 1973-1982. Then the P / E of U.S. stock market went down in a couple of occasions to the threshold of 7, compared with 10 today. But the ' inflation for several years, went practically out of control, pushing yields long U.S. Treasuries in 1974 to 8% and 14% in 1982 compared to 4% today.
The high cost of capital depressed for years, the profitability of American companies rich while the coupons of fixed-income investors offered the illusion of a more profitable, as well as safer, actions. Today it is not. The
current stock market valuations can now predict the next several years, even in the absence of an expansion of multiples to their normal level, average annual returns of 10% compared to 4% of the bonds: a perspective strongly supports actions, at least for those who can remain indifferent to their high short-term volatility.
Once resized as unlikely the possibility of extreme outcome of the current crisis, the basic consideration is only one - the most important for every investor value. As Hussman says " What is clear is that after more than a decade of extraordinary valuations, the shares are finally down to price levels which offer long-term expected returns are sufficiently high."
The game shares is returned in respect of the candle.
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