Here is the findings
Average Average
P/E ratio 10 year return
8.5 11.0% p.a
12.0 8.1% p.a
15.0 6.1% p.a.
17.6 5.7% p.a.
21.6 3.2% p.a.
Lesson: Your future return depends on your entry level. If you invest in the stockmarket now (at P/E ratio of about 18 times), the likely real return over the next 10 years is 5.7% p.a. (and not the high return of past years).
4 comments:
A study by Ibbotson shows that between the years 1926 and 1995, a $10,000 investment would have soared to $10,114,000. Yet out of those 70 years had you missed the best 35 months, your investment would be worth $101,600.
A study by the University of Michigan shows that between 1963 and 1993, $10,000 would have grown into $240,300. But if you had missed the best 90 days during this period, your investment would have been worth only $21,000.
In the 1980s, the Standard & Poor 500 Index rose 16.2% in 2,526 trading days. Nearly 80% of these gains took place in just 40 days!
Moral: You can't predict what the market will do. Stay invested at all times.
What about the danger of investing at the wrong time -- when stock prices are high? An analysis by Templeton shows that even if you invest on the worst possible day of the year, year after year, a long term investor will come out ahead. So don't time the market. Be invested at all times.
(ref: http://findarticles.com/p/articles/mi_m0JQR/is_2_13/ai_30430016)
Meng
Mr. Tan, you seem to be an advocate of market timing, from most of your postings. Investors following your advice are in great danger. I think, Mr. Tan, you need to get your understanding of investment right .
Despite your many years as a CEO of Income and to be fair to you , your knowledge of investment is horrendous.
You better stick to insurance. Even in this area i also find your recommendations not appropiate sometimes. You have great knowledge
in products but not planning.
You are sincere, there is no doubt at all. but this is not enough.
Hope you take this in good spirit
of sharing.
The study by Plexus Asset Mgmt is a good reference and we should not totally ignore it.
The studies from University of Michigan did not show how many of the best trading days are in the bull or bear market.
We can choose to re-allocate our assets between different financial instruments especially when the PE is exceptionally high.
Ask yourself if world seems crazy with global equity PE at 30-40 today, will you still pump all your money in?
May not be totally right, but I think the studies is relevant.
If my companies are valued 30-40 PE due to market euphoria, I will sell my companies.
If my companies are valued at 30-40 x PE due to specific reasons, i.e. it is 'worth' the PE, I will not sell it.
I will relook at my companies if there is a change in managment, an acquisition, emergence of disruptive product/service, a sharp drop in revenue/profit (may add more if due to market euphoria).
I will not sell my companies if the STI is valued at 30-40 x PE or more, or an imminent crash is coming. It is none of my business.
Meng
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