The Stingy News Weekly (10/06/02)
The Markets This Week
DOW 30: 7,528 -2.25% with a median P/E of 21.1
S&P/TSX: 5,935 -2.88% with a median P/E of 24.0
The Value View
Dow at a P/E of 20: 7,136 (-5.2%) Poor Value
Dow at a P/E of 15: 5,352 (-28.9%) Fair Value
Dow at a P/E of 10: 3,568 (-52.6%) Good Value
S&P/TSX at a P/E of 20: 4,946 (-16.7%) Poor Value
S&P/TSX at a P/E of 15: 3,709 (-37.5%) Fair Value
S&P/TSX at a P/E of 10: 2,473 (-58.3%) Good Value
New @ StingyInvestor
The September issue of the Canadian MoneySaver contained an avalanche of articles that encouraged investors to time the market. These interesting approaches sparked my memory. I recently had the pleasure of reading Charles Ellis' book Classics: An Investor's Anthology which contains Robert Jeffrey's article The Folly of Stock Market Timing. The article included a startling figure showing the impact of market timing based on a simple strategy. I've updated his analysis in order to provide a cautionary tale to potential market timers.
"Insurance companies almost everywhere are being squeezed between falling stockmarkets, record claims and worsening economies. Unless share prices stage an unexpected revival, expect an increasing number to merge or fold."
Buffett gives to nuclear threat initiative
"Billionaire investor Warren Buffett, the country's second wealthiest man, is pledging $2.5 million to help reduce the risk of nuclear terror on U.S. soil."
Preservation and Private Property
""Sustainability" is the doomsters' rallying cry. The slogan is clever. It sparks apocalyptic urgency, since today's consumption of many natural resources (like petroleum) necessarily reduces future availability. The slogan also appropriates an aura of self-sacrificing piety for its proponents, while simultaneously hampering opponents by making it appear they favor "unsustainability.""
The coming crash in health care
"Thus it may come as a surprise to learn that the managed-care industry is dying. Oops, did we spill the beans so soon? Well, so be it. Managed care is on the way out."
Growth at a discount
"Value investors are the penny pinchers of the stock market--stubbornly refusing to follow fads, poring over financials to calculate a company's true worth. So you can imagine our surprise when we learned that some of the most respected value managers in the business--from Third Avenue's Marty Whitman to noted bargain shoppers at Vanguard and T. Rowe Price--are buying, of all things, growth stocks. That's right, the same shares--of tech companies, retailers, drugmakers--usually synonymous with lofty price/earnings ratios and dazzling expectations. Even in the depths of the early 1990s recession, no sane value manager would touch them."
"Amid corporate failures and mounting lawsuits, liability insurance for directors and officers is going through the roof. Premiums are now starting to hurt the bottom line."
Banking's not-so-secret weapon
"The smiles were frozen on the faces of everyone in the office, and an uneasy silence had set in. A visiting group of bankers from a small regional institution had just slipped up. "These guys had extended some credit to us and were expecting to get into a bond-underwriting deal, but we had changed our mind," recalls the chief financial officer of the energy company that was hosting the bankers. "They said to me, 'We don't extend credit to people we don't get capital markets business from.' I paused and said, 'Isn't that against the law?' Everyone kind of stopped."
Bracing for October
"While September wins for worst historical performance overall, October is a scary month."
The breakdown in banking
"Meanwhile, the resale of loans created moral hazard: a temptation for banks to scrutinize borrowers less carefully than when their own money was at stake. "The banks abdicated credit judgment, and the people to
This week's trivia questions are:
Q1. What was the P/E ratio of the S&P500 during the lows of 1932?
Q2. What was the P/E ratio of the S&P500 during the lows of 1974?
Q3. What was the P/E ratio of the S&P500 during the lows of 1982?
The answers to last week's trivia questions are:
Q1. The top 10% of stocks showed five-year earnings-per-share growth of 51.1% (1967-1991). How much did earnings grow in the next five years?
Q2. The bottom 10% of stocks showed five-year earnings-per-share growth of -38.4% (1967-1991). How much did earnings grow in the next five years?
Q3. The top 10% of stocks showed five-year sales growth of 31.7% (1967-1991). How much did sales grow in the next five years?
The StingyInvestor Store
Download a sample of the Rothery Report
Download a sample of Frugal Funds
Please visit the Stingy Investor website at
Check out the Stingy News Archive at
To (un)subscribe please use our email centre at
Email comments or questions to
Refer to legal & conflict of interest disclaimers at
|Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...|