Investment
As economy expands, demand for capital will rise --> push up real rates and reduce asset prices.
A prudent investor:
- steer clear of real estate and fixed income --> likely yields from both will be far better a year from now than they are today. "Cap Rate" or "Yield" = net rental income divided by market price.
- investing selectively in STOCKS could prove fruitful. Rules:
1) 1st buy value stocks - those that trading at a discount to their peers based on earnings growth / book value --> tend to boost far bigger earnings yields than the market as a whole, hence are better shielded from drastic repricing likely to pummel high P/E stocks.
2) Dividends are good - companies that pay big dividends actually increase their earnings far faster than those that do not, mainly bcos they are more prudent with their scarce cash.
3) Hold down fees - in a low-return world those 1.5% mutual fund charges really hurt --> best to go with index funds.
4) Market timing is not all bad --- does not mean you should become a day trader. But when prices are at extremes as they are today, best to keep a lot of CASH on hand --> so you can jump back in when P/Es drop and risk premium returns to normal. Will it happen? When Greenspan is moved to issue an unambiguous warning, who are you gonna believe - Wall Street Touts / the wrinkly wizard?
Buying high does not pay
- investing when market P/Es are low has produced better long-term returns over the past 80 years.
-----
Picking stocks and football are similar:
"If you want to win the world cup, you need your team to have a wide range of skills, and consistent good performance during past tournaments."
A prudent investor:
- steer clear of real estate and fixed income --> likely yields from both will be far better a year from now than they are today. "Cap Rate" or "Yield" = net rental income divided by market price.
- investing selectively in STOCKS could prove fruitful. Rules:
1) 1st buy value stocks - those that trading at a discount to their peers based on earnings growth / book value --> tend to boost far bigger earnings yields than the market as a whole, hence are better shielded from drastic repricing likely to pummel high P/E stocks.
2) Dividends are good - companies that pay big dividends actually increase their earnings far faster than those that do not, mainly bcos they are more prudent with their scarce cash.
3) Hold down fees - in a low-return world those 1.5% mutual fund charges really hurt --> best to go with index funds.
4) Market timing is not all bad --- does not mean you should become a day trader. But when prices are at extremes as they are today, best to keep a lot of CASH on hand --> so you can jump back in when P/Es drop and risk premium returns to normal. Will it happen? When Greenspan is moved to issue an unambiguous warning, who are you gonna believe - Wall Street Touts / the wrinkly wizard?
Buying high does not pay
- investing when market P/Es are low has produced better long-term returns over the past 80 years.
-----
Picking stocks and football are similar:
"If you want to win the world cup, you need your team to have a wide range of skills, and consistent good performance during past tournaments."