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#21
07-13-2007, 10:54 PM
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Re: Everything is overpriced?
[ QUOTE ]
[ QUOTE ] on august 8, 1994, w. buffet purchased 257,640 shares of coca- cola's common stock for 21.95 a share . Coca cola earned .84 per share in 1993, and .99 per share in 1994... meaning it was trading at a P/E of roughly 22 when he bought it. Did he make a bad investment because coke was "overpriced"? It may be worth paying a small premium for a premium company. [/ QUOTE ] He sure didn't but he bought one of the strongest global consumer monopolies, so just be careful what you buy at high multipliers. [/ QUOTE ] What made KO worth paying up for was the large "moat" around it's earnings. Buffett was very confident at the time that earnings would grow at a good rate for a long time. For a while he was right, but the perceived moat has shown a lot of cracks this century. 
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#22
07-13-2007, 10:59 PM
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Re: Everything is overpriced?
[ QUOTE ]
Value is relative to investors desires to own these stocks. At the same time, I am not proposing the "dot com", this is a new economy idea. [/ QUOTE ] Price is determined by investors desires, value never is. [ QUOTE ] Mainly, I am just asking why you think these historical PE averages are correct? Value is not intrinsic, it is a supply and demand issue, and there is always a chance companies have been undervalued in the past. [/ QUOTE ] You touch on one good point, but it's not your misunderstanding of what value is. Stocks are worth higher PE ratios when investor tax rates decline, which has happened during the Bush administration. So the median historical PE ratio isn't always reasonable.
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#23
07-14-2007, 12:39 PM
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Re: Everything is overpriced?
[ QUOTE ]
[ QUOTE ] Value is relative to investors desires to own these stocks. At the same time, I am not proposing the "dot com", this is a new economy idea. [/ QUOTE ] Price is determined by investors desires, value never is. [/ QUOTE ] I know what you are saying by this, but value and price are pretty muc the same. Value is not some perfect value that stays the same regardless of investor pricing. The price of every asset is primarily determined by supply and demand intersection. So if price does not equate with value, how do you propose to determine this?
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#24
07-14-2007, 01:03 PM
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Re: Everything is overpriced?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] Value is relative to investors desires to own these stocks. At the same time, I am not proposing the "dot com", this is a new economy idea. [/ QUOTE ] Price is determined by investors desires, value never is. [/ QUOTE ] I know what you are saying by this, but value and price are pretty muc the same. Value is not some perfect value that stays the same regardless of investor pricing. The price of every asset is primarily determined by supply and demand intersection. So if price does not equate with value, how do you propose to determine this? [/ QUOTE ] the discounted sum of expected future cash flows.
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#25
07-14-2007, 01:17 PM
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Re: Everything is overpriced?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] Value is relative to investors desires to own these stocks. At the same time, I am not proposing the "dot com", this is a new economy idea. [/ QUOTE ] Price is determined by investors desires, value never is. [/ QUOTE ] I know what you are saying by this, but value and price are pretty muc the same. Value is not some perfect value that stays the same regardless of investor pricing. The price of every asset is primarily determined by supply and demand intersection. So if price does not equate with value, how do you propose to determine this? [/ QUOTE ] Competitor analysis with the appropriate valuation metric. Krishan
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#26
07-14-2007, 02:06 PM
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Re: Everything is overpriced?
[ QUOTE ]
Currently every stock I research is trading at 20+ p/e multiples and trading at their 52week highs. Isnt there some overoptimism in the market? I wonder how some major catalyst can hurt current prices. [/ QUOTE ] If you just focus on PE, you're never going to be looking foward. You need to include growth in your evaluation process. If a stock has a PE of 20, but consistantly grows earnings at 25% a year, it doesn't sound expensive....especially if you are comparing it to stocks with a PE of 20 that grow at 5-10% per year. In this market, I have no problem with paying for growth, especially in some key sectors (i.e. tech, oil and oil services, arg, mining, contruction machinery, etc).
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#27
07-14-2007, 03:35 PM
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Re: Everything is overpriced?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] Value is relative to investors desires to own these stocks. At the same time, I am not proposing the "dot com", this is a new economy idea. [/ QUOTE ] Price is determined by investors desires, value never is. [/ QUOTE ] I know what you are saying by this, but value and price are pretty much the same. Value is not some perfect value that stays the same regardless of investor pricing. The price of every asset is primarily determined by supply and demand intersection. So if price does not equate with value, how do you propose to determine this? [/ QUOTE ] Price often is roughly equal to price. When it's not, you often have a great investment. I'll give you an example, my first investment as a value investor. Preview Systems decided to fold up shop and liquidate around 2001. They had well over $3 per share in cash, but traded for $2.93. No matter how you crunched the numbers, Preview was worth at least $3.50 per share after liquidation costs, severence, etc. The only risk was a shareholder meeting, which was actually a risk of nil because PRVW's business was a horrible money burning failure. So was Previews value = price? Clearly not. The supply and demand intersection of $3.50 in cash is not $2.93 in cash. I bought some shares (not enough) at $2.93 a few weeks before the vote, and they paid out a $3.50 dividend a few weeks after the vote. Then another 25 cents a bit later and 15 cents more the next year. About a 30% return in a little over a months holding period. Warren Buffett turned a few thousand dollars he earned at newspaper routes and owning some pinball machines, into $45B+ precisely because he looks for situations where value != price.
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#28
07-15-2007, 11:06 AM
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Re: Everything is overpriced?
What is your cutoff 10,15,20? Many of the refiners trade under 10, VLO TSO MRO. If your a contrarian DHI is below 10. CAT and MCD are both below 20 and do a large amount of business overseas so the weak dollar inflates earnings. BTW the hedge funds are shorting the market at a 3 year high so maybe this thing hasn't topped yet.
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#30
07-26-2007, 06:37 PM
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Re: Everything is overpriced?
[ QUOTE ]
Currently every stock I research is trading at 20+ p/e multiples and trading at their 52week highs. Isnt there some overoptimism in the market? [/ QUOTE ] Yes, and you realize that and makes you a very sharp/wise individual. Hopefully down the road this will not be the case and you can invest in certain stocks with confidence. This time is coming....just be patient.
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