A Quote by David Dreman
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.
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Today's stock market actually hates technology, as shown by all-time low price/earnings ratios for major public technology companies
Today's stock market actually hates technology, as shown by all-time low price/earnings ratios for major public technology companies.
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
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.
In my opinion, the greatest misconception about the market is the idea that if you buy and hold stocks for long periods of time, you'll always make money. Let me give you some specific examples. Anyone who bought the stock market at any time between the 1896 low and the 1932 low would have lost money. In other words, there's a 36 year period in which a buy-and-hold strategy would have lost money. As a more modern example, anyone who bought the market at any time between the 1962 low and the 1974 low would have lost money.
Edge also implies what Ben Graham....called a margin of safety. You have a margin of safety when you buy an asset at a price that is substantially less than its value. As Graham noted, the margin of safety 'is available for absorbing the effect of miscalculations or worse than average luck.' ...Graham expands, "The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price."
Mr. Market does not always price stocks the way an appraiser or a private buyer would value a business. Instead, when stocks are going up, he happily pays more than their objective value; and, when they are going down, he is desperate to dump them for less than their true worth.
You can only make money if you buy a product, whatever it is - maybe a currency, maybe wheat and maybe something else - at a relatively low price and sell it at a higher price than you buy it at. There's no other way to make money.
Market prices for stocks fluctuate at great amplitudes around intrinsic value but, over the long term, intrinsic value is virtually always reflected at some point in market price.
Goods move in response to price differences from points of low to points of higher price, the movement tending to obliterate the price difference and come to rest.
To a value investor, investments come in three varieties: undervalued at one price, fairly valued at another price, and overvalued at still some higher price. The goal is to buy the first, avoid the second, and sell the third.
Don't sell yourself short. No one will value you. Set a fair price for you, your book, your services, whatever it is that you have to offer. Most of us set way too low a price. Put it a little higher than you would normally be inclined to do. The worst that can happen is someone will come along and steal it.
Clearly the price considered most likely by the market is the true current price: if the market judged otherwise, it would quote not this price, but another price higher or lower.
We've done price elasticity studies, and the answer is always that we should raise prices. We don't do that, because we believe -- and we have to take this as an article of faith -- that by keeping our prices very, very low, we earn trust with customers over time, and that that actually does maximize free cash flow over the long term.
Stocks are the only thing that people are happy to buy when the price goes up.
Do not buy the hype from Wall St. and the press that stocks always go up. There are long periods when stocks do nothing and other investments are better.
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