Forum Archive Index - May 2002

["Richard Hooper" <hoop@ihug.co.nz>]

Hi DR

Yes an interesting essay, using the KISS approach which many investors seem to ignore at their peril. The writer brings up a very interesting point about the still very overpriced US sharemarkets.

 

Not mentioned however is that theory and history show that stockmarket supercrashes happen once every 60 years or so. ( a correctional process from overpricing).  We (world wide) experienced one in 1987 which bought our av P/E ratio back to "acceptable" levels,to which we (NZ) still have today. If I can recall this never happened in the USA, as the market quickly absorbed the correction and went on to record breaking highs up to year 2000. So my point is, it seems that a supercrash is again "possible" as no-one overseas seemed to have learn't from the 1987 mess.

Is NZ immune to a possible crash? I would like to think we are, as our market seems to have average P/E ratio at a low level compared to the rest. However we(NZ) seem to behave,as show in the past, fatalistically to any drop overseas by dropping further ourselves.

 A worse case scenero is an example ......if an average P/E ratio can reach 40 when historically it should average, say 15 or 13 (depending on which source ), it must drop below 13 for sometime for the historical average to stay the same and balance out. If it can reach 40 ( 3 times the Average) as a high extreme, logically it can drop to a very low level say 4 ( 3 times below the average). Scarey Stuff !!!!! 

 

Emotion says this can't happen. However the essay says you should NOT rely on emotion AT ALL in investing.

 

A bit of food for thought on a nice sunny wednesday morning.

Hope I haven't spoilt your breakfast. :))

 

Hoop

 

----- Original Message -----

From: DR

To: sharechat@sharechat.co.nz

Sent: Tuesday, April 30, 2002 2:32 PM

Subject: [sharechat]

http://www.zealllc.com/2002/lessons.htm