# Equities are just far too risky



## Hawkwing (8 Jun 2002)

Consider the following short term risks:

India/Pakistan Nuclear War

Markets fall 30%

Middle East War

Markets fall 20%

Islamic revolution in Saudi Arabia (much overdue)

Markets fall 20%

Terrorist attack on US on a par with September 11th

Markets fall 15%

George Bush assassinated

Markets fall 15%

Unexpected rise in Interest Rates

Markets fall 5%

Unexpected fall in Interest rates

Markets fall 5%

Against these catastophes we can set the possible upside windfalls:

Sadam Hussein dies or is overthrown

Markets rise 5%

USA win World Cup

Markets rise 2%

Seems to me that investing in equities represents a huge short term gamble in the hope of long term returns.:rolleyes


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## Homer (8 Jun 2002)

*Who knows?*

Hi Hawkwing

You could well be right (and if I was asked to guess the expected return on an equity portfolio over the next few months, I would be inclined to expect this to be negative) but you might also be wrong.  

The difficulty with trying to time the equity markets is that, unless you possess a crystal ball, you could easily miss out on a major rise by being out of the market or suffer a major fall by being in.

The key issue is that equities should not be undertaken as a short term investment unless you fancy a gamble.

Regards
Homer


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## Brendan Burgess (9 Jun 2002)

*Re: Who knows?*

Hi Hawkwing

Consider the following actual events

Two World Wars

The rise of communism

Revolution in Russia

Revolution in China

Worldwide famines and diseases

Nuclear accidents in America and Russia

Constant war footing in the Middle East

The assassination of various American Presidents and other World leaders

Inflation

Stagflation

The collapse of Britain's industries

Recessions and recoveries

Strong dollars

Weak dollars

Currency collapses in various countries

Rise of Islamic fundamentalism

Rise of Christian fundamentalism

Various financial scandals

These various unpredictable events have caused only short blips in the onward march of equities.

There is a big short-term risk in the market. There is also a smaller long-term risk in the market. But these are all outweighed by the risk of not being in the market.


Brendan


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## Hawkwing (9 Jun 2002)

*Equities thru' thick and thin*

Good reply, <!--EZCODE ITALIC START-->_ Boss_<!--EZCODE ITALIC END-->


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## Liam D Ferguson (9 Jun 2002)

*Eh...what Boss?*

I'm still trying to consider Stagflation.  :jem 

Is it something involving a male deer and a bicycle pump?


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## d53 (10 Jun 2002)

*The onward march of equities*

Hold on a second, Brendan

Two points:

Aren't you the leading proponent of 'past performance is no guide to future returns' principle?  But past performance is the core of your argument in favour of equities.

I remember reading an article some time back which put forward the theory that our historical measurement of equity performance suffers from survivor bias.  If you were investing £1000 in equities in 1900, you would have put some in the US (but not 50%), some in the UK, some in Germany, some in Russia, and probably some in South America and Austria-Hungary.  Your UK and US investments would have done well, but you would have completely lost your German and Russian money, almost all your South American money, and almost all of your Austrian investment.  However, when we look at historical equity performance, we only look at UK and US figures.

d


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## Bearish (10 Jun 2002)

*Survivor Bias*

The UK & US returns also suffer from survivor bias. Just think of Enron. But that’s why index tracking is very effective. You are always invested in the surviving companies. Those that go bankrupt automatically fall out of the index with new growth companies replacing them.


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## Brendan Burgess (11 Jun 2002)

*Re: Survivor Bias*

Hi d53

The past performance <!--EZCODE ITALIC START-->_ of investment managers_<!--EZCODE ITALIC END--> is no guide to future performance. This does not mean that the past performance of a football team, a plumber or an artist is not a guide to their future performance.

I don't think that survivorship bias has a huge impact on the long term stockmarket performance. Yes, the Russian market disappeared and that was a big impact for anyone who was 100% invested in Russia. (Depositors and property holders lost all their wealth as well).

My understanding from reading Siegel is that the German markets took a battering during the World Wars, but evenually recovered.  I am not familiar at all with the South American markets, but certainly their depositors and bond holders were all wiped out. I can't see why the holders of shares would have been wiped out - apart from Cuba perhaps.

Brendan


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## Dynamo (11 Jun 2002)

*Survivorship Bias - Stocks*

I also wouldn't read too much into Bearish's claim about survivorship bias in stock indices. Certainly the Enrons of the world may ultimately be deleted from the market indices, but <!--EZCODE BOLD START-->* at their actual price at the time of the deletion*<!--EZCODE BOLD END--> - which will usually reflect most of the loss to shareholders. It's not simply eliminated from the historical records. Whereas, if a mutual fund closes, it no longer has a track record, and it will therefore be expunged from the historical data.


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## Brendan Burgess (12 Jun 2002)

*Re: Survivorship Bias - Stocks*

Hi Dynamo

Do you have any view on the omission of Imperial Russia from the data? What significant stockmarkets were completely wiped out, never to recover?

Brendan


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## Dynamo (12 Jun 2002)

*Equities*

Hi Brendan,

Nothing to add on that, I'm afraid, other than perhaps a general impression that cross-border investment wouldn't have been very large at that stage, ie that the investors who lost out on Russia would mainly have been Russians.


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## d53 (12 Jun 2002)

*Equities*

Dynamo/Brendan

Dynamo - cross border investment was not as common 102 years ago as it is now, but it did exist: UK investors had significant stakes in South America, and French investors had exposure to Russia.  But there is still a survivor bias, whether or not there was cross border investment.

Brendan - yes, past performance is more of an issue for managers than for sectors, but it still is an issue.  The last 100 years were a unique economic experience, and the only thing we know about future investment environments is that they won't be the same.  So extrapolating from past historical experience is at best chancy.  Just to pick two scenarios: the last 50 years have been the most peaceful for the major economies for a long time: why should this persist?  As the baby boomers in western economies approach retirement over the next 30 years, they will become net disinvestors where they are at present net investors.  This may have the effect of depressing equities relative to bonds, as this is where they have traditionally invested their funds.

d


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## Dynamo (12 Jun 2002)

*Equities*

Hi d53,

But other aspects have changed in favour of equities, surely. For instance, corporate regulation and governance was non-existent at the time of Imperial Russian, and financial reporting was undeveloped, to say the least.

I know, I know, financial reporting and corporate governance didn't do much to protect investors in Enron, Tyco, etc, but it was presumably a good deal easier to scam investors a hundred years ago than it is now.

I'm not sure I entirely agree with you on survivorship bias, either, although I see your point. But if US and UK investors were unrepresented in the Imperial Russian equity market, then eliminating it from your analysis of how their assets performed doesn't give rise to any inaccuracy.


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## d53 (12 Jun 2002)

*Equities*

Dynamo

I agree that there may be benign factors as well.  My fundamental point is simply that all these factors exist: the last 50 or 100 years is just one scenario, and we shouldn't read too much into it, and we certainly shouldn't take as a given that equities will outperform bonds to the same extent.

100 years ago, US/UK investors were not internationally diversified much, and so didn't suffer.  Russian investors suffered 100%.  We cannot just take the experience of the lucky ones and say that this is representative of all equity returns.

d


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## Brendan Burgess (12 Jun 2002)

*Re: Equities*

Hi d53

The outperformance of equities over bonds and properties has been fairly consistent over almost all 20 year time periods across almost all economies. Sure, there is no guarantee that this outperformance will continue. In fact, the extent of the outperformance is probably unlikely. But it is reasonable to expect it to continue. 

Most long term studies show a comparison of the returns on equities vs. the returns on bonds for various contries - so the return on American bonds is compared with the return on American equities. 

To work out the return on an internationally diversified basket of investments, one would have had to include Russia in the equities basket. But you would have had to include Japan and Germany in the bonds basket. The survivorship bias in bonds is much more distorting.

Brendan


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## Hawkwing (13 Jun 2002)

*Art*

All this big picture stuff has me scared.

Though I think Brendan is winning the Equities versus other Financial Investments argument it has rather illustratd that there ain't any of them safe. :eek 

Is "Works of Art" the answer?  They would seem to be independent of whatever economic or political system happens to be in the ascendancy at any particular time.  

Maybe Gold?:jem


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## tyoung (13 Jun 2002)

*valuations*

What's different this time is that stocks have been 
so highly valued relative to other asset classes. This is due to the widespread belief that stocks are the only longterm investments. This has lead to a "Don't worry about the price, just buy" mentality.
 Personnally, I'm amazed at the levels of complacency despite two years of falling prices. No worries just buy!

  This is a secular bearmarket that is following the greatest longest bullmarket of all time. Do not expect it to be short or steep. Death by a thousand cuts, more likely,until complacency has been replaced by fear and stocks are widely seen to be the work of the devil.


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## raul (13 Jun 2002)

*equities*

Reading this thread the 'man from Mars' could be forgiven for thinking that 'equities' were a fairly homogenous commodity.

The world of equities offers massive choice and since equity markets are not efficient (post Enron surely the EMH is also blown up)there is always opportunity for astute/patient investors.

Leaving the 5/10/20/100 years of historical evidence to one side,the main choice facing investors is to give long-term loans to governments or companies or to take a stake in the future profits/dividends of one or more companies.

If management is motivated to deliver shareholder value
and uses the capital given to them efficiently it seems philosophically (& intellectually) more appealing than the bond option.

I anticipate the riposte that the shares of the good companies are over-valued but this is the ultimate sweeping generalisation.

The good people of Ireland will shortly be faced with this proposition in the case of C&C : if the issue is reasonably priced I for one would be disposed to including it in my portfolio. 

It strikes me that the return on gilts is pretty skinny and that over time there simply has to be better potential within the world of equity markets.I do accept that most of the fund managers seem to struggle to discover this but I believe the pressure of short-term performance measurement has seriously affected their behaviour.The Elan debacle revealed how many of the managers were 'index slaves'.

The growing corporate bond market offers better returns than gilts but the investor continuously under-estimates the default risk( the way punters never anticipate the horse refusing to start/ running out/ being brought down).


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## rainyday (13 Jun 2002)

*Re: C&C*

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> C&C : if the issue is reasonably priced I for one would be disposed to including it in my portfolio<hr></blockquote><!--EZCODE QUOTE END-->

I presume you're referring to your personal portfolio here. Aren't you concerned that you'll have to commit your money based on the <!--EZCODE BOLD START-->* indicative*<!--EZCODE BOLD END--> price range, so you won't actually know what price you'll be buying at?


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## Hawkwing (26 Jun 2002)

*Told You So*

Every day you expect to hear of a new bananaskin to trip up equities.  The cultists really have to be pitied for their blind faith.:rolleyes


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## Brendan Burgess (27 Jun 2002)

*Re: Told You So*

Hi Hawkwing

Everytime I have fallen on a banana skin, I just picked myself up and continued on my path of progress

Brendan


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## rainyday (5 Jul 2002)

*REMAINING USA CEO'S MAKE A BREAK FOR IT*

Band of Roving Chief Executives Spotted Miles from Mexican Border 

(San Antonio, Texas: Rooters Business News) 

Unwilling to wait for their eventual indictments, the 10,000 remaining CEOs of public U.S. companies made a break for it yesterday, heading for the Mexican border, plundering towns and villages along the way and writing the entire rampage off as a marketing expense. "They came into my home, made me pay for my own TV, then double-booked the revenues," said Rachel Sanchez of Las Cruces, just north of El Paso, "and right in front of my daughters." Calling themselves the CEOnistas, the chief executives were first spotted last night along the Rio Grande River near Quemado where they bought each of the town's 320 residents by borrowing against pension fund gains. 

By late this morning, the CEOnistas had arbitrarily inflated Quemado's population to 960 and declared a 200 percent profit for the fiscal second quarter. This morning the outlaws bought the city of Waco, transferred its underperforming areas to a private partnership and sent a bill to California for $4.5 billion. Law enforcement officials and disgruntled shareholders riding posse were noticeably frustrated. "First of all, they're very hard to find because they always stand behind their numbers, and the numbers keep shifting," said posse spokesman L.J. Earp. "And every time we yell 'Stop in the name of the shareholders!', they refer us to investor relations. I've been on the phone all darn morning." "YOU'LL NEVER AUDIT ME ALIVE!" is a common CEO response. 

The pursuers said they have had some success, however, by preying on a common executive weakness. "Last night we caught about 24 of them by disguising one of our female officers as a CNBC anchor," said U.S. Border Patrol spokesperson Eric Nels. "It was like moths to a flame." Also, teams of agents have been using high-powered listening devices to scan the plains for telltale sounds of the CEOnistas. "Most of the time we just hear leaves rustling or cattle flicking their tails," said Nels, "but occasionally we'll pick up someone saying, 'I was totally out of the loop on that.'" 

Among former and current CEOs apprehended with this method were Computer Associates' Sanjay Kumar, Adelphia's John Rigas, Enron's Ken Lay, Joseph Nacchio of Qwest, Joseph Berardino of Arthur Andersen and every Global Crossing CEO since 1997. ImClone Systems' Sam Waksal and Dennis Kozlowski of Tyco were not allowed to join the CEOnistas as they have already been indicted. So far, about 50 chief executives have been captured including Martha Stewart, who was detained south of El Paso where she had cut through a barbed-wire fence at the Zaragosa border crossing off Highway 375. "She would have gotten away, but she was busy stopping motorists to ask for marzipan and food coloring so she could make edible snowman place settings using the cut pieces of wire for the arms," said Border Patrol officer Dee Bopp. "We put her in cell No. 7 because the morning sun really adds texture to the stucco walls." 

While some stragglers are believed to have successfully crossed into Mexico, Bopp said the bulk of the CEOnistas have holed themselves up at the Alamo. "No, not the fort-- the car rental place at the airport," he said. "They're rotating all the tires on the minivans and accounting for each change as a sale.


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## Brendan Burgess (7 Jul 2002)

This thread has an article all to itself in today's Irish Indo.

Brendan


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## Hawkwing (20 Jul 2002)

*Sell, Sell, Sell*

Hey,

Since I started this thread, stocks have collapsed and nothing really bad has happened.

The Fed says buy

The UK FSA says buy

George Bush says buy

Still they sell!

This market has another 50% to fall before prices are realistic.

Sell, Sell, Sell.:rolleyes


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## nore (23 Jul 2002)

*Independent - what a rag!*

My god, that says it all about the Independent if the guy just comes on here and reports a discussion... And quotes these figures by Hawkwing connecting events with possible market slides (I mean, no offence, but he made them up!)...
You're a gas man Brendan, still defending your position... Maybe you're active in managing your investments, getting in and out of things at the right time but, let's be honest, trackers and most managed funds have been negative for almost two years now and likely will be for another couple(?) and that's what most people have their money in, if at all, in stocks. And even if it does "bottom" and grow eventually how long would it take an investment that has suffered the losses of the period to recoup the losses and then ACTUALLY grow? Maybe in terms of the invesators lifetime, it NEVER would?? For anyone who has had this period coincide with their time for saving towards a mortgage etc. it's been a disaster. To be honest, I find your smug defence and apologies offensive, give it up!


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## tyoung (24 Jul 2002)

*I think it's time to buy!*

This selloff has proceeded more rapidly I thought.  I'm going to  increase my equity exposure.  The risk/reward favours buying.


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## Bullish (25 Jul 2002)

*Happy Days are here again*

Tyoung was right, now was the time to buy.

The Dow is surging.

Go away you bears and wallow in your own pessism.  Equities are king.  Life goes on.  Normal service is resumed.  Happy days are here again.


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## ClubMan (25 Jul 2002)

*Re: Happy Days are here again*

<!--EZCODE BOLD START-->* now <!--EZCODE ITALIC START--> was<!--EZCODE ITALIC END--> the time to buy*<!--EZCODE BOLD END-->

Your not a stock analyst by any chance? :lol


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## tyoung (25 Jul 2002)

*happy days*

I think Bullish's comment is somewhat tongue in cheek. 
  I 'm not trying to make some shortterm call on the direction of the market. If I could do that my day job would pay a lot more. Rather, the flight from "riskier" investments like stocks to "safer" investments like cash and Government debt means that stocks offer a better risk/reward ratio relative to other asset classes.  Logically therefore the longterm investor should increase his equity exposure.


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## Brendan Burgess (25 Jul 2002)

*Re: happy days*

Hi nore

I don't time the market - I buy and hold for the long term.

What I have learnt from the discussion on Askaboutmoney and further reading is that some markets appear to be much better value than others from time to time. If I had sold out at the top of the market and if I buy in at the bottom of the market ( yesterday or after it has fallen another 50%?), I would be very wealthy. But I am not able to time the market. 

Having said that, the Irish market seems screamingly cheap now. If I was a market timer, I would probably borrow to invest in it. 

Brendan


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## Rossy Fan (25 Jul 2002)

*You can't even trust Greenspan*

I thonk the good Senator (if he still is one) made a very valid observation in the last Sindo.

He recalled that not very long ago Greenspan was complaining about stockmarket overexuberance when the Dow soared to 6,600.

Now that it had plunged to 8,500 (last week) the same Greenie tells us it is oversold even though the Corpo and other news is far worse now than it was then.

Even Greenie has a vested interest which prevents him telling it as it really is.  

True, his motives are highly commendable - stability of the US and World Economic system - but motives don't matter.  If Greenie was a financial adviser he would be suable.  

Does anybody actually give investment advice which is truly independent of ulterior motives?


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## Scarlet Pimply Nell (26 Jul 2002)

*Under Your Nose, dear*

<!--EZCODE BOLD START-->* "Does anybody actually give investment advice which is truly independent of ulterior motives?"*<!--EZCODE BOLD END-->

Admittedly, such noble and selfless individuals are rare in this Mé Féin Republic of ours, but I can think of one individual who has, for some years now, given investment advice with no ulterior motives, and in fact at a financial cost to himself.  He has also provided a forum where people from any walk of life can give and get free investment advice.  

Brendan Burgess.


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## Rossy Fan (26 Jul 2002)

*Ulterior Motives*

Even the <!--EZCODE ITALIC START-->_ Boss_<!--EZCODE ITALIC END--> has baggage - let's not say UM.  But he is so wedded to the CoE that he is clinically incapable of giving out sell messages.  

I am looking for some (knowledgable) person who has no axe to grind whatsoever in recommending Buy, Sell or Hold.  

Robbie Kelleher comes close - with everybody else from Greenie to the Hobbit, when they make a recommendation, one is simply reminded of the quote "oh he would say that wouldn't he?".:rolleyes


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## ClubMan (26 Jul 2002)

*Re: Ulterior Motives*

<!--EZCODE BOLD START-->* I am looking for some (knowledgable) person who has no axe to grind whatsoever in recommending Buy, Sell or Hold.*<!--EZCODE BOLD END-->

That reminds me - whatever happened to Shane's monkey? :lol


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## rainyday (26 Jul 2002)

*Re: Ulterior Motives*

 the monkey won! :rollin


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## Dogbert (26 Jul 2002)

*Greenspan v Ross*

Hi Rossy Fan,

I'd trust Greenspan a lot more than Ross. The mere fact that the index is higher than when Greenspan made his "irrational exuberance" speech means nothing. I read a report recently (FT ??) which quoted the Fed's valuation model (which underlay the irrational exuberance comment) as suggesting US equities are currently approx 20% undervalued.

Ross is an annoying commentator, imho, because while lots of the things he says make a good deal of sense, he can't resist (a) the populist approach, (b) at times, the latest fad, and (c) the self-righteous preening that he has called everything correctly. He cost BOI investors a lot of money, advising them to sell at the trough. He whined incessantly about the make-up of the bank's board (sorry, Senator ... <!--EZCODE ITALIC START-->_ putting on sneering tone_<!--EZCODE ITALIC END--> "court of directors"), and advised them to co-opt new economy gurus like Fran Rooney. Reckon the court is glad it courted Donal Geaney ?? And Ross will probably castigate them for it now. Finally, this constant bullshit now about fund managers not deserving to be paid because markets are falling. In Shane's good old days as a stockbroker (before Dermot Desmond sorted him out), do you reckon he rebated commissions to customers who didn't make money on their trades ??


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## Unidentified (26 Jul 2002)

*Ross the Populist*

Mr Ross is simply an articulate self serving populist with a short memory - except for the less than 50% of his predictions which turn out right.

His analysis is shallow.

I will leave it at that.


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## Investor (26 Jul 2002)

*Greenspan*

Rossey Fan

"He recalled that not very long ago Greenspan was complaining about stockmarket overexuberance when the Dow soared to 6,600."

I would suugest that earning growth in a majority of companies in the interim period could explain why Greenspan now feels the market is undervalued.  Although there are no doubt other motives as well.


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## rainyday (2 Aug 2002)

Some interesting advice from the Indo and
Some interesting advice from the bankers


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## Brendan Burgess (3 Aug 2002)

In this article, Bank of Ireland Private Banking advised a client to remortgage his house to invest in a mix of stockmarket based funds. This happened 6 monthsa ago and had he accepted this advice, he would have lost tens of thousands of pounds. 

I don't see this as a very big deal. Many advisors are urging people to remortgage their home to buy an investment property or, worse still a holiday home in Spain. There is a trade off between risk and reward and 6 months is too short to judge whether or not the advice was good. 

Equities have tended to outperform the mortgage rate, so borrowing to invest in equities might be good advice.

Brendan


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## Hawkwing (3 Aug 2002)

*Not like you*

Stretching it a bit there, <!--EZCODE ITALIC START-->_ Oh Founder_<!--EZCODE ITALIC END-->.:\ 

Mortgaging to buy a holiday home (or own residence) is quite irrelevant to the debate, no less so than borrowing to buy a car.

Mortgaging to buy an investment property - yes that is ostensibly  comparable, as it is an investment decision. Yet, given the lumpy nature of property investment the usual reason for gearing is to get critical mass and diversification from a relatively small  outlay.  Also since short term property returns are so less transparent and volatile than equity returns, property investment is more compatible with taking a long term geared position, at least on the nerves. 

Now mortgaging to invest in equities is in a league of its own.  Gearing is not needed for critical mass as you have often pointed out - a relatively small outlay can get the necessary diversification.  This is pure gambling!!  

Isn't it really ironic that a bank should advise you to borrow to invest in equities.  Who is going to do the lending?  Why, the bank, of course.  If borrowing to invest in equities is such a "no brainer" why do banks lend money at all, why not simply bypass the individual and themselves invest directly in equities?  

<!--EZCODE ITALIC START-->_ Oh Founder_<!--EZCODE ITALIC END-->, it really isn't acceptable that the Equity Cultists, of which you are clearly one of the most fanatical, have no accountability whatsoever for their blind faith. When things go wrong (and boy have they gone wrong!) they always point out to the long term.  This is beginning to sound like "you will get your reward in heaven", a familiar mantra of other cults.

Clearly BoI, in giving that pretty outrageous advice six months' ago, were convinced that equities had bottomed out.  One presumes they were also fairly convinced that the six months would see an upswing.  They got that wrong <!--EZCODE BOLD START-->* in spades*<!--EZCODE BOLD END-->.:rolleyes


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## Brendan Burgess (6 Aug 2002)

*Re: Not like you*

Hi Hawkwing

I see that you are treating me with the respect I deserve. Don't worry, I don't mind!

There is no mad outcry about the huge amounts of money being borrowed to invest in property. It is often 100% gearing and few seem to appreciate the risk involved. If property was revalued every day, the way equities are, I think the volatility of individual properties would be a bit more transparent.

Likewise, if equities were valued only every 5 years, they would appear a lot less volatile. 

There is nothing inherently wrong with borrowing to invest in equities, if you can service your borrowings and if you have a long term perspective. If you did it last year, you could be down 30% or more just now. But, most of the time, this strategy will work well. 

Coming back to the individual case, we don't know what percentage of his house he was advised to borrow and we don't know what proportion of his income the repayments would have been. 

I generally would advise against borrowing to invest in equities and I disagree with the advice given by Bank of Ireland, but it's not terrible. 

Brendan


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## Homer (8 Aug 2002)

*The time is right???*

Crystal ball gazing time.

Is the time now right to get back into equities?  Have the markets bottomed out?  Or are they just taking a temporary respite on their headlong rush to oblivion?  Or am I just crazy trying to time the markets?

Answers on a postcard please.....

Homer


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## Brendan Burgess (5 Sep 2002)

*Re: The time is right???*

There is a good piece by Patrick O'Sullivan in today's Indo entitled Get Into Equities for the Long Term. The author is a senior economist with Bank of Ireland Private Banking.

It is a good summary of the numbers and stats:
The S&P has fallen by 40%
The Eurostoxx by 50%
The ISEQ by 35%

The prospective p/e ratio for S&P is 17
The prospective p/e ratio for Eurostoxx is 16

The average p/e ratio fo the S&P is 15. According to Siegel, the the p/e ratio for the S&P should be around 20 given low transaction costs, low inflation, higher productivity and more favourable tax regime. 

The Federal Reserve has a model which indicates that the market is between 15% and 30% undervalued.


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## Brendan Burgess (5 Sep 2002)

*On the other hand.....*

Alternatively, you could choose to believe this guy...

ftyourmoney.ft.com/servlet/ContentServer?pagename=FT/FTym/FTyourmoneyRender&inifile=
futuretense.ini&c=
StoryFTYM&cid=1028186154944&ExpIgnore=true


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## tyoung (6 Sep 2002)

*prospective*

The Key word here is prospective.  That is projected, future etc.  The traditional measure is the trailing P/E which for the s and P is over 30.  In otherwords there are very rosy projections for earnings growth for 03. let's hope they come true. Otherwise look out below.


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## Brendan Burgess (6 Sep 2002)

*Re: prospective*

Hi Copernicus

I don't see any conflict between what Prof Marsh says and what Patrick O'Sullivan says?

In the article by O'Sullivan, he points out that "...just because equity prices have fallen does not necessarily mean that they are cheap..." and "...the short term outlook for equity markets remains couded..."

Hi tyoung

If the trailing p/e is 30 and the prospective is 17, does that mean that profits are projected to almost double over the two periods?

Brendan


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## Hawkwing (6 Sep 2002)

*A little Humility, Please*

I think a little humility and apology from the fanatical equity cultists would be in order at this point of time.

By any standards or measure anyone who advised investing in equities over the last year or two has been proved disastrously wrong.  

The Fed telling us they have a model which shows equities are underpriced is like Hibernian telling us that they have a model showing Celebration Bond is a winner.  The vested interest in either scenario is so pronounced as to totally undermine any findings.

If the Fed think equities are such a good buy why have they forced interest rates down to such ludicrously low levels to try and stimulate economic activity?

Japan has just touched a 20 year low.  US, UK and Europe are touching 5 year lows.  Another 15 years or more before we bottom out?:rolleyes


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## tyoung (7 Sep 2002)

*prospective earnings*

Brendan
 Basically yes. Coincidentally Ft's Lex had a piece on this issue on Fri. Here's the link.
news.ft.com/lex
If earnings come in at or close to projections, US stocks are reasonable value. If not, there's more downside ahead. Personally I wonder how real these projections are. I think analysts are privately cutting projected EPS(hence the recent market slide). They just haven't got round to doing so publically.
I feel more comfortable with the Irish and UK markets. Valuations and expectations are lower. Of course if the US falls they are likely to follow in the shortterm. Longerterm I think value will win out. 
  Hawkring
  In Brendan's defence, he was very public and very early in calling the whole technology bubble and warning about overvaluation in the US market. If people had followed his advice in 1999 they would have avoided the extreme losses technology investors have suffered.  
And don't forget all bear markets end. In my opinion, you should be upping your equity exposure.

Regards


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## Paster (18 Sep 2002)

*Media Watch*

I see it again, Merrion stockbrokers in the Sunday papers have come to the view, surprise surprise, that a carefully selected basket of equities (which they proceed to name) is just the ticket at this point of time.

When oh When will some regulator insist on the following regulations?:

(1)  Stockbrokers, no more than anybody else, haven't a bull's notion what is a good equity investment and should immediately stop pretending anything different (unless they have insider information, in which case they should be jailed for abusing it).

(2)  Stockbrokers have a very very strong vested interest in promoting an appetite for equities and so their advice is hopelessly compromised and again they should be banned from making such advice.

(3)  There is a very strong possibility that a stockbroker has an even more direct vested interest in recommending a particular equity either because that company is already a client or because it wishes to ingratiate itself with a view to a future client relationship.

In short, why doesn't the CB ban stockbrokers giving any specific investment advice because (a) (short of illegal insider info) they haven't a clue and (b) they have a hopelesly vested bias towards giving bullish advice.


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