Rob Coyte's Blog

The old saying you make your money when you buy not when you sell is absolutely true. Guess what we are right now in a very exciting time for long term investors.

 

Last week I read a Bloomberg article discussing the fact that US equity valuations “were stuck at near credit crisis levels”. The article also went onto say that companies were going to increase their profit by 19% in 2011. The article goes onto say that the earnings growth is back in line with long term averages however the index is trading at 13.5 times earnings which is roughly 8% discount to the long term average.

 

What does this mean...quite simply? The operational performance of the companies is back to “average” however from a valuation perspective investors can acquire these businesses for less than they could on average in the past.

 

I believe that nothing short of “new” economic dangers surfacing that ceteris paribus this valuation effect could lead to a rise in markets.

Rob Coyte | Friday, July 22, 2011
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