tag:blogger.com,1999:blog-34104702.post7452816364699921977..comments2023-10-31T03:00:09.987-07:00Comments on Intelligent Investing: Who says investing the old-fashioned way doesn't work today?Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-34104702.post-68043327465193050312007-03-28T09:13:00.000-07:002007-03-28T09:13:00.000-07:00Hi Jojo,Generally, Ben Graham states anything abov...Hi Jojo,<BR/><BR/>Generally, Ben Graham states anything above PER of 15 is expensive. However, a true value investor should not blindly follow this guideline. Some businesses is worth a higher multiple while some other do not.<BR/><BR/>Besides comparing across the industry, another important aspect is the historical PER that a business is being valued at. In addition, the business's moat plays a great part of what kind of multiple you think is good to pay for.<BR/><BR/>Then you need to use your discretion, thinking, and knowledge to determine if a low multiple or say a 10-year lowest mulitiple is really a value that is undervalued. Some times it could be the low multiple is because of the business irreversible eroding moat. But if the moat remains intact and just because of some "news" that cause the multiple to plunge, you should buy in all you can.<BR/><BR/>TO illustrate, I shall compare 2 example, the first is based on industry wide which is property development and the second is based on a specific business which is JNJ.<BR/><BR/>In property development in the USA, players like Toll Brothers, Centex and so on, even in its good days were never traded above PER of 12. It averages about 6 to 8. In SG, now you can see some being auctioned up to 40 to 60? I wish them good luck for those who are still buying in. Investors I suspect may have begun complacent, following a herd mentality in buying into short-term psychological gain without paying sufficient attention to the danger that the price that they are paying are putting a huge pressure into the business being able to sustain the kind of returns they themselves are expecting. Lured by the prospect of high returns, investors do not give sufficient considerations to the risk involved. But once investors become nervous, their reactions will be swift and unforgiving. As disasters always happen, it is due always to a chain of critical events and one of it is such.<BR/><BR/>Johnson & Johnson PER in the past 10 years was never below 20. At today, it is priced at slightly above 16. If you strictly follow Ben's rule, this stock will never qualify but then it is a hell of a business, their operating brands and business are either number 1 or 2 in the fields they operate in. Good management and so on.<BR/><BR/>As to ROE, this is irregardless of industry they are in. Generally, I prefer businesses that have a ROE of above 15% averagely with at least a 10 year record. Anything that falls below that must have accompanying compelling reason for me to consider.Berkshirehttps://www.blogger.com/profile/02415080722037608944noreply@blogger.comtag:blogger.com,1999:blog-34104702.post-76432811732129661082007-03-28T07:00:00.000-07:002007-03-28T07:00:00.000-07:00Question: What is considered a low PER and high RO...Question: <BR/><BR/>What is considered a low PER and high ROE for you ? <BR/><BR/>JojoAnonymousnoreply@blogger.com