# Will equities make a comeback ?



## disappointed in returns (9 May 2003)

I read the guide to savings and investments this time last year and was greatly impressed as it made a great deal of sense. 

I was wondering though what to do about the following :

Last year I bought 12 different shares in different industrys for a total of 24,000 and I am currently down 5000 (Losses reached 7500 at one stage). I now calculate that these shares need to make a return of 12.50% every year for the next four years just so my original investment keeps pace with inflation. (I had a 5 year plan originally)

I suppose I have no option now but to stay put and hope for an upturn ? Will equities make a comeback ?


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## ClubMan (9 May 2003)

*I suppose I have no option now but to stay put and hope for an upturn?*

Well, other than cutting your losses and selling now (at a loss) I guess the only other option is to sit tight until your investment makes a recovery.

*Will equities make a comeback ?*

Chances are that they will but nobody can say when or to what extent with any certainty. Anybody who claims to be able to is spoofing.


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## daltonr (9 May 2003)

These things always go in cycles so the answer is yes, eventually.  The problem is there's no way of knowing if it'll shoot up in a month, or meander up over a couple of years.
All you can do is figure out if the shares you hold are undervalued and if they are it makes no sense to sell them.

The problem with the current situation is that normal rules don't seem to be applying.  Low interest rates usually push equities higher (because required return can be lower and still substantially beat lower risk investments).

Some of the reasons why the markets are low will clear up quickly, War is always an uncertain time, but is often follwed by a boom.  Other issues are more difficult, the fact that some very big companies lied about their earnings means that we really can't know for sure how much any company is worth until new accounting practices are shown to be reliable.

Not long ago there were people who said the "New Economy" would cause constant stable growth.  They were obviously wrong.  Anyone who tells you that we are into an era of constant decline or lack of growth is probably also wrong.  there will be a few more booms and busts in our lifetime.

What is interesting is people have a desire to buy shares (or any other investment) when the price is high and climbing, even though the best value is to be had when the investment is out of fashion, and the price is low.

-Rd


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## rainyday (9 May 2003)

Hi RDalton - I agree with your opinions. However, I think it's worth pointing out that there is no certainty that equities will make a come-back, even in the long-term. I believe they will - but there are no guarantees...


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## daltonr (9 May 2003)

rainyday,

You'd agree though that the price of a share doesn't necessarily reflect the value of the share.  Regardles of sentiment which might keep the price down, good companies will continue to grow their value.

What I was suggesting, which I think you'd agree with is that eventually the sentiment realises that the value has gotten away from it and it corrects. Usually over corrects in fact.

So share prices not rising ever again would mean that all companies stop growing in value.  That would mean capitalism has stopped working.

A good [broken link removed] of sentiment getting out of touch with value is the occasional case of a companies Market Cap being less than it's cash.

So, is it possible that equities will never recover?  If the sun doesn't rise tomorrow, I'll start worrying.    

-Rd


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## rainyday (9 May 2003)

> So share prices not rising ever again would mean that all companies stop growing in value. That would mean capitalism has stopped working.



Or alternatively, it would imply that the current prices are still hugely overvalued, and it could take more than a generation's lifetimes for this to correct. The P/E ratios on the Dow are still at pretty crazy levels.

I'm not saying that this is my opinion, or that it's likely to happen - but it is one possible scenario that investors need to consider when planning their investments.


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## ClubMan (9 May 2003)

*A good example of sentiment getting out of touch with value...*

That's the problem with brokerspeak terms like "sentiment" - you can't put a figure on it!


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## daltonr (9 May 2003)

> Or alternatively, it would imply that the current prices are still hugely overvalued, and it could take more than a generation's lifetimes for this to correct.



That's true.  And to make matters worse if companies lie about their earnings then even a sensible P/E doesn't necessarily mean anything.

Interesting Times

-Rd


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## daltonr (9 May 2003)

> That's the problem with brokerspeak terms like "sentiment" - you can't put a figure on it!



In case anyone is woried I'm not a broker.  And I tend not to listen to them.  I think what people should do (but tend not to) is stick to the things you can put your finger on.  Find a way of valuing companies that you are comfortable with and *understand*.  

Some people use the P/E and earnings growth figures.  Some people look for high yielders.  Some people look at the graphs and try to find patterns.  

If you are looking to buy and hold for years, then a blip on a chart is not what you should be looking for, you should be looking for a company that consistently grows earnings, with good management.

Where sentiment comes in is that on a given day a price may be above or below the value you put on it.  Simple logic now, if you want a a house and think it's worth 100K and they only want 90K then you buy. But if they want 110K you don't.
You can't haggle in equities, you can only refuse to buy.

So, not brokerspeak.  Heaven forbid.    

-Rd


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## ClubMan (9 May 2003)

Apologies - I didn't mean to insinuate that you were a broker (heaven forbid!  . It's just that words like "sentiment" tend to be bandied about by authoritative sounding people when discussing equities and, ultimately, they are meaningless. Other than that minor cavil your posts have been very interesting and informative.


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## The Virus (9 May 2003)

There is evidence of a cyclical pick up in consumer confidence post the geo political turmoil which could lead to a closing of the long bond yield gap pointing to upward pressure on corporate earnings against the deflationary backdrop supporting value stocks with geared exposure to the retail and pharma sector as a volatility play.  
_BUY BUY BUY_ :lol     :evil


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## ClubMan (10 May 2003)

Bye, bye! :\


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## sfag (28 May 2003)

*smart money*

says buy when all the leading analysists and experts predict gloom. Now aparently they are all gloomy so maybe thats a yardstick. I doubt if you will get ordinary inverstors trusting the stock market again without a property burst first.


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