Forum Archive Index - May 2001

[Dick O Connor <problast@altavista.com>]

    I have just been sticking my nose into a book called Irrational  
Exuberance, a phrase taken from Greenspan when he was referring to the US 
sharemarket in ’96. The book is written by a Yale professor of economics and 
the interesting bits are mainly about his convincing explanations of why the US 
market has become “irrational”. If you don’t do anything else, pick up a copy 
of the book in a library or bookshop and turn to page 6 where there is a small 
graph comparing the (inflation adjusted) rise in US share prices with the 
comparatively microscopic rise in company earnings – a  startling comparrison.

    He suggests, in an understatement, that the US may be the exception in 
terms of returns from the sharemarket. A Phillippe Jorion and a William Goetz 
studied 39 countries, presumably other than the US, from 1916-96 and found the 
median real (adujusted for inflation) rate of return was only .8% a year  
excluding dividends.

    I wonder how many people interested in this chat site realise that NZ’s 
performance over the last 13.5 years has been much worse. Before the crash of 
’87 the NZSE40 reached a shade over 4000. Today it is still wallowing at nearly 
half that. And maybe someone here could tell us what the real figure would be 
if it was adjusted for the inflation over the last 13.5 years. Also, the NZSE40 
figure presents and over-optinistic picture because it is refreshed from time 
to time – a stronger company comes in to push a weaker company off the bottom 
of the list. The biggest example that made the greatest difference was, of 
course, Telecom without which the index would be a lot lower than it is. In the 
same 13.5 years, the US market recovered from the crash fairly quickly and then 
went on to quadruple – meaning it did eight times better than our market which 
helps to explain why things have been so good there and, in the main, so 
extremely difficult here.

I mention these few things because one sometimes gets the impression that some 
younger chatters are not overly familiar with the history of where markets have 
been. How could they be? I envy the younger people who are keen and showing 
great interest. There is much more information available to them these days and 
if they only keep going, and learn to set some parameters that will serve them 
best, they must inevitably do better than those of us who are older. When I 
took up an interest in the market, for example, it was almost impossible to 
find a book that was worth reading. Today there are great books available and 
the internet adds much more. 
    


Find the best deals on the web at AltaVista Shopping!
http://www.shopping.altavista.com


----------------------------------------------------------------------------
http://www.sharechat.co.nz/          New Zealand's home for market investors
----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/forum.shtml.