A Quote by Alex Berenson
Of course, the discounting of future earnings should hurt all stocks. But it should hurt technology stocks more than others, because so many of them are valued at extremely high levels relative to their current earnings.
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Rising interest rates are considered bad for stocks because they raise the cost of doing business and depress corporate earnings and because higher yields make bonds relatively more attractive than stocks to investors.
Investors have been too willing to buy stocks with strong reported earnings, even if they do not understand how the earnings are produced.
It's one of the fundamental principles of the stock market: When interest rates go up, stocks go down. And along with financial companies and cyclicals, technology companies - with their sky-high price-to-earnings multiples - should be among the biggest losers in an environment of rising rates.
A young financial writer once brought ridicule upon himself by stating that a certain company had nothing to commend it except excellent earnings. Well, there are companies whose earnings are excellent but whose stocks I would never recommend. In selecting investments, I attach prime importance to the men behind them. I'd rather buy brains and character than earnings. Earnings can be good one year and poor the next. But if you put your money into securities run by men combining conspicuous brains and unimpeachable character, the likelihood is that the financial results will prove satisfactory.
One of the big problems with growth investing is that we can't estimate earnings very well. I really want to buy growth at value prices. I always look at trailing earnings when I judge stocks.
Generally, variations in earnings aren't nearly as impactful on glamour growth stocks as are changes in image and, well, sexiness. I often think of glamour stocks as though they are attractive women dressing to the nines.
To know whether stocks are cheap or pricey, we typically look at price-to-earnings ratio. Valuation is a tougher question than many folks realize.
I buy stocks when they are battered. I am strict with my discipline. I always buy stocks with low price-earnings ratios, low price-to-book value ratios and higher-than-average yield. Academic studies have shown that a strategy of buying out-of-favor stocks with low P/E, price-to-book and price-to-cash flow ratios outperforms the market pretty consistently over long periods of time.
It's nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings.
Sometimes it takes longer to create value, but if the companies generate more earnings, the stocks will ultimately reflect that.
If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
There are only so many times that you can utter ‘It does not hurt’ before it begins to hurt even more than the hurt. You become enlightened of the feeling of feeling hurt, which is worse, I am certain, than the existent hurt.
Near the top of the market, investors are extraordinarily optimistic because they've seen mostly higher prices for a year or two. The sell-offs witnessed during that span were usually brief. Even when they were severe, the market bounced back quickly and always rose to loftier levels. At the top, optimism is king, speculation is running wild, stocks carry high price/earnings ratios, and liquidity has evaporated. A small rise in interest rates can easily be the catalyst for triggering a bear market at that point.
If you expect to continue to purchase stocks throughout your life, you should welcome price declines as a way to add stocks more cheaply to your portfolio.
Calculate a stock's price/earnings ratio yourself, using Graham's formula of current price divided by average earnings over the past three years.
A brother with small earnings may ask,''Should I also give? My earning are already so small that my family can barely make ends meet.'' My reply is, ''Have you ever considered that the very reason your earnings remain so small may be because you spend everything on yourself? If God gave you more, you would only use it to increase your own comfort instead of looking to see who is sick or who has no work at all that you might help them.
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