Speculators are always crystal gazing into future - it seems they are forward looking. On the other hand value investors always look into the past - as far into the past as possible - and so can be termed retrograde? I say yes, with pride, a value investor is retrograde literally, and for a good reason too!
Everyday I read in financial news papers that the Indian share market is right now very reasonably priced. They say that presently trading at 15 times the two year forward earnings compared to the long term average of 16 times.
Two years forward earnings? Who can predict what a company can earn as profits two years hence? What higher foolishness can there be than buying a share at 15 times the earnings expected two years in future, while value investors are taught not to buy shares at not more than ten times the past earnings? Further, when we say past earnings, we don't mean simply the earnings in the previous year, but average earnings in the last five preceding years. This extra caution is to avoid buying a share by mistake. A company may have a bumper year purely by luck, whereas the criterion of average earnings in the past years will eliminate that risk.
While the media is howling the market is cheap, I am scouring the market everyday, with utter disappointment, to make new find of a reasonably priced share!
We value investors do not mind being labelled retrograde - looking back into the past is essential ingredient of our craft.
Everyday I read in financial news papers that the Indian share market is right now very reasonably priced. They say that presently trading at 15 times the two year forward earnings compared to the long term average of 16 times.
Two years forward earnings? Who can predict what a company can earn as profits two years hence? What higher foolishness can there be than buying a share at 15 times the earnings expected two years in future, while value investors are taught not to buy shares at not more than ten times the past earnings? Further, when we say past earnings, we don't mean simply the earnings in the previous year, but average earnings in the last five preceding years. This extra caution is to avoid buying a share by mistake. A company may have a bumper year purely by luck, whereas the criterion of average earnings in the past years will eliminate that risk.
While the media is howling the market is cheap, I am scouring the market everyday, with utter disappointment, to make new find of a reasonably priced share!
We value investors do not mind being labelled retrograde - looking back into the past is essential ingredient of our craft.
