A Story about a Classic Investing Theory
When I was working my way through college, many years ago, one boss was an avid stock invester.
Remembering a Classic Investing Theory
The New York Times, Economic Scene, By David Leonhardt, August 15, 2007
More than 70 years ago, two Columbia professors named Benjamin Graham and David L. Dodd came up with a simple investing idea that remains more influential than perhaps any other. In the wake of the stock market crash in 1929, they urged investors to focus on hard facts — like a company’s past earnings and the value of its assets — rather than trying to guess what the future would bring. A company with strong profits and a relatively low stock price was probably undervalued, they said.
Their classic 1934 textbook, “Security Analysis,” became the bible for what is now known as value investing. Warren E. Buffett took Mr. Graham’s course at Columbia Business School in the 1950s and, after working briefly for Mr. Graham’s investment firm, set out on his own to put the theories into practice. Mr. Buffett’s billions are just one part of the professors’ giant legacy.
Yet somehow, one of their big ideas about how to analyze stock prices has been almost entirely forgotten. The idea essentially reminds investors to focus on long-term trends and not to get caught up in the moment. Unfortunately, when you apply it to today’s stock market, you get even more nervous about what’s going on….
My sense is that there is opportunity in today’s market. But as the reporter notes, this is a complex time. The article goes on to talk about price-to-earnings ratio (P/E ratio) and how it is commonly measured against the past year’s earnings while the professors has argued for a five to ten year measure. While the currently measured average P/E ratio is about 16.5, taking the professors’ tack leads to a P/E ratio of about 27.
That’s higher than it has been at any other point over the last 130 years, save the great bubbles of the 1920s and the 1990s. The stock run-up of the 1990s was so big, in other words, that the market may still not have fully worked it off.
Oh, my. Well, back to the CDs and hope the bank doesn’t close.
But wait, there is a huge technology shift happening. Faster than past ones.
There’s this new Internet thing changing business methods like crazy. What does that mean?
Many investors are banking on the idea that the economy has entered a new era of rapid profit growth, and investments that depend on the words “new era” don’t usually do so well.
But one must consider how the technologies can alter that “high profit” by introducing competition more quickly.
Maybe the reality is looking at companies build on high tech that have a track record of good, long-term P/E.
Have a diverse portfolio since any one company will wax and wane.
So it becomes a High-Tech Story about a Classic Investing Theory.
life, business of
“Our business in life is not to succeed,
but to continue to fail in good spirits.”
Robert Louis Stevenson.
quoted by Tim O’Reilly
Culture, Counterculture #1
There are more interconnections between the ’60s and now than most folks realize. As this review and book point out, much of the foundation for the Internet came into being in the ’60s and ’70s as the US recognized the need for and built up a resilient communications infrastructure. One irony of moving from government/university based Internet to privatized Internet is that that resilience may be much weaker as the private providers each attempt to gain a secure economic position supporting it.
There is much more in this review and this book.
Cyberculture’s Roots in ’60s Counterculture
book review by Marjory S. Blumenthal, TechNewsWorld, Issues in Science and Technology, 08/12/07
From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism by Fred Turner. University of Chicago Press, 2006, 354 pp.
Where did the Internet come from? Why has it affected society as it has?
These questions have prompted several books over the past few years, books that have celebrated the technologists of the 1960s and 1970s, the observations of trend-spotting social scientists beginning in the 1980s, or the pioneering entrepreneurs of the 1990s. A more global view has been missing, and From Counterculture to Cyberculture aims to provide one….
From Counterculture to Cyberculture is a timely, thoughtful, and eccentric contribution to the growing literature on the Internet and its effects. Weaving together strands of U.S. social history during the second half of the 20th century, Stanford University’s Fred Turner essentially presents an argument about the relevance of the Internet by emphasizing its connection to the generation that made “relevance” the touchstone for cultural value….
Politics is the art of looking for trouble
Politics is the art of looking for trouble,
finding it whether it exists or not,
diagnosing it incorrectly,
and applying the wrong remedy.
- Ernest Benn
Its the democratic thing to do.
You will need to go read Wanna Wiki Radio, Part II for yourself.
she has the low expectation - “…whether it be tools for survival or or inspiration, I feel a squeeze - a palpable loss of personal space….”
but then, she finds wiki and, well, democracy (with a small d). “…What I find astounding and different is that everyone can participate - meaning that all of the people who may be oppressed or timid or disenfranchised in one way or the other can have an equality….”
wow, small d in the middle of wiki
who’d a thought.
it’s
sort of
liberating
in a small d
way
