Will Trice wrote:
- quote -

A ROE of 12% means that the book value of a company is going up by 12%
every year before dividends are paid.

In an effort to be conservative, I put up the 12% figure which
corresponds to the ROA of the S&P 500 (11.96%). The actual ROE for the
S&P 500 is 19.84%.

--
Ron

Ron Peterson wrote:
- quote -

profits in excess of treasury bonds..."

- quote -

rate of growth of book value which should be at the ROE.

- quote -

So what? How does an ROE > 12% mean that a company is "making profits
in excess of treasury bonds"? Even if this is true, why doesn't an ROE
- quote -

Will Trice wrote:

- quote -

Treasuries offer a "risk free" return.

- quote -

My point is that people have to make a trade-off between risk and
return. If a stock is selling below book, dividends aren't so bad since
the stock holder can buy more stock with them. Employee options may be
small enough or non-dilutive that they aren't a big impact on corporate
growth.

--
Ron

"Ron Peterson" <ron[at]shell.core.com> wrote in message
- quote -

How do you relate this to treasuries?

- quote -

Wow, these are tough criteria. A quick Yahoo! screen indicates that there
are zero public companies like this (P/B < 1, ROE > 12%, no dividend, no
employee options). But whatever floats your boat.

-Will

Will Trice wrote:
- quote -

If the market will always be valued at some fixed multible of book
value, then the return to stock holders will be at the same rate as the
rate of growth of book value which should be at the ROE. If the company
does something foolish with their earnings like pay dividends, give
stock options to their employees, or buys back stock, its growth might
be severely limited.

- quote -

Splits have very little impact on the profitability of a corporation,
and most investors now realize that. Certain investors claim that they
can predict the future price of a stock from charts of its past
performance. I think that investors need to know much more like the
financial ratios and the level of demand for the corporations products.

- quote -

It's a difficult problem on what to recommend people that are just
starting to invest. The corporations are doing well, but their stock
prices are doing too well.

--
Ron

"Ron Peterson" <ron[at]shell.core.com> wrote in message
- quote -

Then I'm still trying to understand your earlier statement: "The market is a
better place to invest as long as companies are making profits in excess of
treasury bonds..."

- quote -

Sure, but if Berkshire has a 2-for-1 split, are they more or less likely to
take a dive? Neither (or maybe slightly more likely since the split incurs
overhead costs). The absolute price of a stock is not an indicator of a
company's health or the future movement of its stock price.

- quote -

This is perfectly reasonable. The point I've been (weakly) trying to make
in this thread is that you gave a newbie what sounded like a quantitative
measure for when an investor should or should not be in the market, with the
implication that the current market does not measure up. Yet the market
seems to meet the criteria you gave. Now we know that you have other
criteria as well (nothing wrong with that). I am not trying to convince
either you or the OP to invest in stocks, I'm just not fond of
market-timing, especially when it seems that the given market-timing
criteria have been met, but the market is still deemed a bad place to
invest.

-Will

Will Trice wrote:
- quote -

I distinguish between rate of profits and rate of interest (risk free
return to capital).

- quote -

There are other criteria that need to be considered along with the need
for diversification.

- quote -

Berkshire has the advantage of being large and diversified.

- quote -

Accountants can keep it hidden for a variety of reasons, but it's still
there.

Although, I would like to be able to buy stock that meets my P/B and
ROE criteria, in the current market, I have to relax it considerably to
meet other criteria.

--
Ron

"Ron Peterson" <ron[at]shell.core.com> wrote in message
- quote -

If you want to compare ROE to treasury yields, then why did you screen on
12% ROE instead of something close to 4.75%? Another quick glance at Yahoo!
shows 64 public companies that meet this criteria. That seems like enough
issues to give the individual investor confidence that today's market is a
god place to invest (assuming they follow your criteria).

- quote -

But if you don't measure the price against something (like earnings), then I
don't think this is relevant to the probability that a stock will take a
dive. If you're right, then Berkshire Hathaway ought to auger in any day
now.

- quote -

I would hazard that "true profitability" does not exist for most companies
because of the subjective side of accounting.

Will Trice wrote:
- quote -

My hypothesis is that ROE is the best measure of the rate of profits,
but it should be sustainable and the finances of the company should be
evaluated in the same manner by the investing public over a period of
time.

- quote -

Even if the earnings increase, there is always the danger that the
public won't value the stock as highly as it did.

The investor is also at a disadvantage of not knowing what is the true
profitability of corportation. And, of course, management can alway
destroy a corporation or fail to destroy its advantages.

--
Ron

"Ron Peterson" <ron[at]shell.core.com> wrote in message
- quote -

How would you measure this? If you mean that the earnings yield (E/P) on
the S&P 500 (5.23% on 12/15/05) should be higher than the 20 year treasury
(4.75% on 12/15/05 - the highest treasury yield that day), then doesn't the
current market qualify as good for investment?(I picked 12/15/05 because I
have a financial magazine handy with data for that date.)

- quote -

This is true only if earnings don't increase as well, right?

Will Trice wrote:
- quote -

The market is a better place to invest as long as companies are making
profits in excess of treasury bonds, but as the prices increase, the
probability of short term loss increases.

--
Ron

"Ron Peterson" <ron[at]shell.core.com> wrote in message
- quote -

So 161 companies met your initial criteria, and 22 more met your tightened
criteria. This sounds like what stock screens are supposed to do. How many
stocks should this screen return before you consider the market a good place
to invest?

Will Trice wrote:
- quote -

OK, I will do a search instead of relying on memory in the future. I
did a search with P/B below 1 and ROE above 12% and got 23 matches. At
least one of the stocks had a negative tangible book value, so some of
those stocks should be avoided.

--
Ron

To me, saving is different than investing. I know that alot of
investors don't view it this way. But, saving has a much less chance
of taking a huge decrease in value over the short term. Investing your
retirement dollars in the market is planning on a future return. Don't
get me wrong, I like investing and I believe that in the long run
(historically) the payoff is good. But, I don't view investing as
saving -- money in my savings account will only lose value (NOTE I am
not including losses associated with the THEORY that I could have
invested it somewhere else and gotten a better return) 2 ways:
inflation outpaces the interest or the bank closes and FDIC does not
cover me. I think that people should have a large savings AND invest.
What I see now is that people have a large debt AND invest. This just
seems dangerous to me if all of these people are counting on this
investment and social sec to cover their retirement.

ben

Elle wrote:

- quote -

Studying the market requires looking at all sectors of the economy. It
helps to diversify by investing in several sectors. And, in each
sector, compare the compainies to pick the ones with the best
fundamentals.

--
Ron

"Will Trice" <wwtrice[at]paragondynamics.com> wrote
On Benjamin Graham's "defensive" vs. "enterprising" investor:
- quote -

I myself would characterize the difference between the two (defensive vs.
enterprising) as "very conservative" vs. "less conservative."

I don't know what you mean exactly by "study of the market." Both approaches
require a study of the company being considered, of course.

I would wager the enterprising investor quantifiably takes more risk but has
a higher return.

- quote -

For the record, I am not advocating any particular value approach. I would
think just about all stock picking folks with an interest in Graham take his
criteria (be it defensive or enterprising) as guidelines, modifying them to
their taste. For example, Warren Buffet, while a Graham-ian student
(literally and figuratively), has written commentary on additional
parameters he suggests examining. Some do-it-yourselfers and professionals
might prefer the Buffet variations.

"TB" <borekfm[at]pacbell.net> wrote
Elle wrote
- quote -

You seem to have missed my qualifier, "Graham stock pick." Not "value stock
pick." Graham's writings provide specific criteria which, if you actually
study them, have a strong likelihood of never permitting distressed
companies on the Graham radar. That's all I meant.

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message news:S0tFf.1729
- quote -

In a discussion with Tad, I would not be looking at the criteria for a
defensive investor, but rather the enterprising investor - one who takes the
time to study the market. However, in the context of the OP, I think you
would be right to use these criteria, although analysis of past financial
results is still called for.

-Will

Elle wrote:
- quote -

Definitely not - those are your words. I wish it were that easy, I'd
have a lot more free time!

- quote -

All I can say is, keep reading...it sounds like you've read a Graham
book which is a great start but the universe of what are considered
value stocks is broader than what you're describing. To get a sense of
this you might pull up the holdings in Vanguard's Value Index fund or
Windsor fund. Alongside your solid dividend payers you'll see your
Kodaks, Mercks...fallen angels that are hardly in their salad days.

-Tad

"Will Trice" <wwtrice[at]paragondynamics.com> wrote
- quote -

Benjamin Graham's Criteria for the "Defensive Investor":
snip for brevity
Uninterrupted dividends over 20 years.
snip for brevity
Source: The Intelligent Investor (pages 184-185).
as quoted at http://www.ndir.com/SI/articles/1202.shtml

Graham said the "enteprising investor" could relax this to simply requiring
a current dividend.

Google for {Graham defensive enterprising investor dividends} for more
citations indicating Graham's strong (or exclusive?) emphasis on
dividend-paying stocks.