Sunday Spectacle XXXIV







(source: "Jittery Companies Stash Cash," The Wall Street Journal. November 3, 2009. Click on linked article for interactive image.)

Comments

  1. AnonymousNovember 11, 2009 at 5:32 PM

    This is a great point not included in many historic P/E comparisons. The balance sheet of non-financial America is very sound and Schiller analysis does not take into account excess cash. Tech in Oct last year was given away.

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  2. Sivaram VelauthapillaiNovember 11, 2009 at 6:18 PM

    I still like using the P/E ratio and don't think the changes matter much. Some industries may have higher cash but others don't (like financials and their questionable "cash" levels) so it kind of evens things out. Furthermore, companies are more leveraged now. Even if they have higher cash, they also have higher debt. To give you an idea, I forget exactly but I believe there are less than 5 AAA-rated companies in America right now. There were many more in 1980.

    Having said all that, I agree wtih your view on tech. That is my favourite sector and expect that sector to do well, especially if we end up with mild deflation/low-inflation, as I expect. I have been looking for a good tech company to buy but haven't found anything. The problem is that, although you are suggesting tech was cheap in Oct 08, I don't believe it was. Even the march low did not produce cheap stocks in my opinion (Seth Klarman also shared a similar view recently.) Market valuations are still way too high IMO if you assume that future economic growth, and hence profitiability, will be subsdued.

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