On Jan 1, 7:26 pm, dapperdobbs <George...[at]hotmail.com> wrote:
There are some very good quality stocks with
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Sorry - wrong - I blew it. T is above 12 times earnings. IR (Ingersoll
Rand) is just over 5 times earnings.

On Dec 26 2008, 2:12*pm, "John Smith" <ccalls0...[at]yahoo.com> wrote:
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Many seem to equate indices with investing in stocks. Indices include
stocks I wouldn't touch. There are some very good quality stocks with
solid earnings histories and solid earnings prospects trading below 6
times earnings. AT&T is one.

True, stocks correlate with the market, but not all of them, not
perfectly. Stocks do correlate with earnings. I wonder if the mass-
marketing on the part of funds whose disciplines are "top-down" have
influenced any of the many posters here? It's relevant to talk about
the broad market and its PE and yield and book value, and earnings,
but the broad market is made up of individual companies. That's (I
guess) a "bottom-up" approach, or fundamental analysis.

"Numerology" is important, too, but what makes a business successful
is a primary consideration. The product line is what drives the sales
and earnings. Like the Buffet story before he invested in American
Express - he stood at a restaurant and observed that people paying
with credit cards were exceptionally proud. So, I guess he figured it
would be a popular product.

At year end the hypothetical portfolio I set up is +12.72% v. a
Vanguard broad based index +7.6%. The website "Stockalicious" was
temporarily hijacked, but is back online. My collection is just stocks
I thought had gotten badly beaten up even though they are solidly
profitable companies. My disappointment, really, is CHRW - I kind of
cheated a bit on that one, since it didn't get badly beaten up. Its
earnings are too good, and are somewhat insulated (the company does
logistics for trucking). It's the percentage leader in the collection.

http://www.stockalicious.com/portfolio-holdings/4710

http://www.stockalicious.com/portfolio-holdings/4745

Prosperous 2009!

On Dec 31 2008, 7:06*pm, honda.lion...[at]gmail.com wrote:
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I think that the point is just calling things by what they are: it's
not planning as much as guessing and, in the case of investing,
betting that things will go one way.

Happy 2009!

On Jan 1, 12:33 pm, Douglas Johnson <p...[at]classtech.com> wrote:
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No I would not say they are fully accounted for. Someone has punched
some numbers, estimated earnings, and then reported the same to the
media. But these are only estimates. It is very common for these
estimates to be shown to be off, sometimes by a lot, when actual
earnings are reported.

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Well you are now qualifying your statement to include consideration of
the difference between anticipated and actual earnings. This
distinction is important, as I explained in my other posts.

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There tends to be a sell-off if earnings are worse than anticipated.

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I encourage careful qualification. But in this case, I think you
initially failed to note that the difference between anticipated and
actual earnings is unknown, and hence we cannot say whether prices
will tend to rise or fall. Thus even knowing that earnings will
decline and so act to drive P/Es up, it is also quite possible
earnings will be worse than anticipated, driving stock prices down. If
prices are driven down, then P/E does not necessarily rise.

honda.lioness[at]gmail.com wrote:

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Which is exactly why I expect P/E to go up. Lousy fourth quarter earnings are
fully accounted for on the P side, but not on the E side, assuming we are
talking about twelve month trailing earnings. As long as Q4 2008 earnings are
less than Q4 2007 earnings and are close to what the market anticipates, P will
stay roughly the same, E will decrease, and P/E will increase. Right?

The only way P/E will decline is if we get a big sell-off. Always possible.
That's why I use weasel words like "almost guarantee". -- Doug

"Daniel T." <daniel_t[at]earthlink.net> wrote in message
news:daniel_t-2117CF.11043701012009[at]earthlink.vsrv-sjc.supernews.net...
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Because, as I've said in several prior posts, people perceive stocks to be
on sale. They will buy. That will cause the price to go up. They perceive
them to be on sale only because, in many respects, the price used to be
higher. As I've also said, I don't know when this price rise will occur. I
don't know that it will be in 2009, though others here have indicated we've
already hit a bottom. I just know that it *will* occur. Market prices of
broad indexes is not based on black and white facts, but, rather, intuition.

Elizabeth Richardson

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote:
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Surely you can tell the difference between someone who says, "X will go
up because it has been higher in the past." and someone who says "X will
go up because it is inversely tied to Y and Y is going down."

Notice also that he is *not* saying the profits are going to be bad this
quarter because they were good in the past.

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Right, because the mutual fund's past performance has little to do with
what its future value will be, other factors predominate.

So, I ask again, what is there *other than its own past performance*
that you use to determine when, or if, stocks will go up? What are the
other factors that you use to determine what the future value of stocks
will be?

--
Perfection is achieved, not when there is nothing more to add,
but when there is nothing left to take away.
-- Antoine de Saint-Exupery

" <danie...[at]earthlink.net> wrote:
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The most publicized P/E numbers are the trailing twelve months ones
that use the last 12 months of claimed earnings per share, so yes.

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When actual Q4 earnings are announced, what the buyers and sellers
consider is the difference between actual and what was expected. If
actual earnings exceed expected earnings, then the price shortly after
the time of announcement will tend to rise. If actual earnings are
less than expected, then the price will tend to drop. Since we do not
know which way the difference is going to go, we do not know the way
the price will go. Thus predicting P/E's movement based only on
estimates of what actual earnings are likely to be (as Douglas
proposes) is a crap shoot. Fact is it has been long anticipated that
Q4 earnings by and large are going to be down. But the real question
is whether the actual Q4 earnings will be as bad as anticipated.

This is pretty well known stuff (information already built into price
type stuff) and I feel a little arrogant/pedantic/your choice
repeating it when I know so many here know this.

honda.lioness[at]gmail.com wrote:
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But as I understand it, P/E isn't based on *anticipated* earnings, but
past earnings. Isn't that correct? If the P has already been adjusted
for anticipated earnings, then it won't change when the earnings are
declared (assuming the predictions were correct.) When the E goes down
the P/E will go up.

--
Perfection is achieved, not when there is nothing more to add,
but when there is nothing left to take away.
-- Antoine de Saint-Exupery

Douglas Johnson wrote
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I do not see how you can be so confident about P/E changes here. As I
know you and most everyone here are aware, earnings are anticipated.
The financial media makes much fuss about predictions of earnings.
Hence nearly simultaneously and in a virtual continuum, stock prices
respond even to these mere earnings predictions. An actual decline
that happens to correspond with an anticipated decline is for the most
part already going to be built into a stock's price. Hence P/Es should
already have declined for the fourth quarter at this point. Once
actual Q4 earnings are announced, stock prices will respond to the
difference between what was anticipated and what actually happened.
These differences can be positive or negative, with the result that
what P/Es will do is rather unpredictable.

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote:

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It's simpler than that. If E falls, then P/E rises even if P is flat. No
history involved. Unstated is my belief (with a low level of confidence) that
prices have bottomed. -- Doug

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote in message
news:Q%U6l.247217$Mh5.13686[at]bgtnsc04-news.ops.worldnet.att.net...
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New word

"Daniel T." <daniel_t[at]earthlink.net> wrote in message
news:daniel_t-653183.18553931122008[at]earthlink.vsrv-sjc.supernews.net...
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Is he? Isn't he using the knowledge that past performance of awful earnings
brings rising prices? Still past performance, just a different perspective.
Everything humans do relies on past performance. Even when we learn
something entirely new, we employ methods used in the past or knowledge
acquired in the past and put together in a new way.

I think you're caught up in the "past performance does not guarantee future
results" disclaimer in a perpectus. Just because a mutual fund gained an
average of 5% a year in the past does not guarantee it will gain an average
of 5% a year in the future. It might and it might not. It might lose 3% for
a year (or more) before gaining 10%. The mutual fund company does not want
you to rely on that past performance. Because the future cannot be
predicted, mutual fund companies must post that disclaimer so you can't
successfully sue them when they have a down year or two.

Elizabeth Richardson

<danie...[at]earthlink.net> wrote:
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Tell me just one thing you are planning for the future that does not
rely on anything from the past.

Douglas Johnson <post[at]classtech.com> wrote:
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Finally, someone who is using something other than past performance.

--
Perfection is achieved, not when there is nothing more to add,
but when there is nothing left to take away.
-- Antoine de Saint-Exupery

honda.lioness[at]gmail.com wrote:
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No, I'm not "bent on declaring that we cannot really know anything."
Planning for the future means to get ready for what you expect the
future to bring, not what the past has brought.

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That would be silly. By all means, use something in the past to help
show that P/E or stocks will go up (thereby making the current price
"cheep" by comparison,) anything will do, other than their past
performance divorced from any other facts. I'm just saying (like every
prospectus warns) that the fact that they happened to be higher in the
past is not a valid indicator that they will be in the future.

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I'm not going anywhere. I'm asking where is the evidence that stocks
will go up? Is there something about the companies themselves? Something
about the US economy? Something about human nature? What?

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I don't know if the P/E of 15 is arbitrary or not, I'm trying to find
out if that is, or is not, the case.

--
Perfection is achieved, not when there is nothing more to add,
but when there is nothing left to take away.
-- Antoine de Saint-Exupery

Tman wrote
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I think it only addresses the magic (namely, in the mathematics) of
means. I do not think it addresses what is magic about 15. Why not 50?
Why not 5?

<danie...[at]earthlink.net> wrote:
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I really think you are trying to use epistemology to discuss issues
here. You seem bent on declaring we cannot really know anything. This
is true, but it is also in conflict with the very premise of this
newsgroup: Planning.

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I think you are determined either (a) to refute using anything from
the past to help make decisions in the future; or (b) to get me to
accept the idea that astrology, numerology and investing is all for
recreation and entertainment, like roulette. Otherwise, I do not know
where you are going with all this. Maybe you'd do better to state why
you do or do not think a P/E of 15 is or is not totally arbitrary.

Daniel T. wrote:
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Well, let me just be argumentative. Forget about the DCF basis for P/E
that I spoke of in a previous post, and let's say that P/E is totally
arbitrary. Let's also say that it is random -- with an unknown
distribution, and we have no knowledge a-priori of how the random value
is distributed.

It is very well and sound (but limited) reasoning -- given these
assumptions, which include lack of knowledge of what drives P/E -- to
observe historical P/E's over time, and a.) suppose that it is more
likely for them to take values close to the historical mean, and b.)
suppose that they will tend to move closer to the historical mean if
they are "far" from it. The basis of the first being Bayesian-motivated
reasoning about a distribution of a random variable, and the second
being regression to the mean.

So I think the argument about basis and lack of basis for "15" is
getting a bit specious, but back to finance 101...
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If you believe DCF analysis driving the fundamental stock price, then
P/E does in fact take into account _expectations_ of future earnings.

And it's common sense too. What would you pay for a stock that is going
to earn $10 / share in 2009, and then there will be no future earnings
after that, ever -- guaranteed.

T

One can look to simple DCF analysis to reason about P/E ratios in a way
that is (somewhat) better than "totally arbitrary". For a particular
stock, P/E is inversely related to the required rate of return on the
company's investments, and directly (in the sense that an increase in
one drives an increase in the other) related to the growth opportunities
available to the company. Extending this to a macro-economic sense, one
can reason that the P/E ratio of "the market" depends upon the required
(nominal) rate of return on capital and level of economic growth.

So, suppose that one believes that -- over say a 10-year horizon
starting now -- that the economic policies of the next few years will
soon lead to unprecedented inflation, and because of this and other
factors, real economic growth will slow down -- as compared to the last
10/20/50 whatever years. They then have a very rational basis for
believing that P/Es will be lower going forward than we has been
observed in the past.

Any differing opinions on my (amateurish) interpretation of Corp Finance
101?

T


honda.lioness[at]gmail.com wrote:
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