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portefeuille (99.60)

trying to help

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May 16, 2013 – Comments (12)

It happened again. Just why do so many people have such a hard time with logic?

in which Downtown Josh Brown destroys the 1999 comparison

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in which Downtown Josh Brown destroys the 1999 comparison

...

Here's a very rudimentary but essential thing to be aware of - in 1999 the S&P finished at 1469, earned 53 bucks per share, and paid out $16 in dividends. These are nominal figures, not adjusted for inflation.

The 2013 S&P 500 is earning double that amount - over $100 per share. The index will also be paying out double the dividend this year, more than $30 per share, and returning even more cash with record-setting share repurchases.

This sounds pretty good, what's the catch?

What kind of premium, pray tell, are we paying for double the earnings and twice the dividend yield versus 1999's market? I'm so glad you asked - turns out we're not paying any premium at all. We're paying a discount. 50% off. The current S&P 500 trades for a PE of 14 versus 33 for 1999. So double the fundamentals for half the price.

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Did you find the error in logic that creeps in in that last sentence?

I told him that he should correct his error via twitter but that just resulted in me getting blocked. Reminds me a bit of my attempt to bring Siegel to correct an error in an NYT article that had just appeared on nytimes.com. I almost implored him to correct the mistake before the article went into print. Oh well, he stubbornly defended his flawed article and was later on torn to pieces by quite a few people in the comment section. Oh well ;)

12 Comments – Post Your Own

#1) On May 16, 2013 at 10:07 PM, portefeuille (99.60) wrote:

I still want to help that fellow, so maybe someone else can point him in the right direction via twitter or in the comment section to his article. Just trying to spare him from a very bad Siegel day tomorrow ;)

 

https://twitter.com/ReformedBroker.

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#2) On May 16, 2013 at 10:21 PM, portefeuille (99.60) wrote:

Reminds me a bit of my attempt to bring Siegel to correct an error in an NYT article

It was the WSJ apparently (see, it's really easy to accept that you make errors every now and then ;)).

 

The S&P Gets Its Earnings Wrong

 

To see some reactions to the error Siegel chose not to recognise see comment #5 here ...

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#3) On May 16, 2013 at 10:31 PM, portefeuille (99.60) wrote:

maybe this could help ;)

Shocks to the Brain Improve Mathematical Abilities

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#4) On May 16, 2013 at 10:49 PM, portefeuille (99.60) wrote:

I think the error he makes is obvious, but just to make sure ...

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AAPL earns $10 in 2013 and cost $100 (-> p/e = 10).

It earned $5 in 1999 and cost $100 (-> p/e = 20 = 1/2 * 10).

So double the fundamentals for half the price.

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I think now the error should be entirely obvious.

 

if it still is not, one last attempt ;)

You get twice the earnings for the same price or you get the same earnings for half the price now, so "valuation" (in this case p/e) is now better by a factor of 2, not by a factor 4 that is implied by

"So double the fundamentals for half the price."

 

 

I rest my case :)

 

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#5) On May 16, 2013 at 10:51 PM, portefeuille (99.60) wrote:

So double the fundamentals for half the price.

Actually replacing "for" by "or" would make a sufficient fix. And maybe not too many will notice :)

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#6) On May 16, 2013 at 11:06 PM, portefeuille (99.60) wrote:

momentum21 pointed me to the dividends mentioned in the article. So does the additional factor of 2 come from the higher "dividend yield of the index"? That would be rather absurd, but maybe some people think that dividend yield is somehow an independent factor in "valuation". Thus making all non-dividend paying stocks infinitely expensive ;)

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#7) On May 16, 2013 at 11:28 PM, portefeuille (99.60) wrote:

20 = 1/2 * 10

20 = 2 * 10

That flawed logic from said article almost melted my brain. Must have lost a few cells ...

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#8) On May 17, 2013 at 1:00 AM, CCharing (89.87) wrote:

Yea, be tripped over himself to describe the "half off-ness" of the market.

Just saying "approximately double the earning" would have sufficed.

--

Glad you drop by to post once in awhile...

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#9) On May 17, 2013 at 1:02 AM, CCharing (89.87) wrote:

a couple of other people have since mentioned it too heh

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#10) On May 17, 2013 at 2:24 AM, portefeuille (99.60) wrote:

a couple of other people have since mentioned it too

Indeed. So time to let the case rest for good now. Somehow I tend get blocked from semi-celbrities like this guy or Feuerstein and usually for strange reasons. Oh well ;)

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#11) On May 17, 2013 at 2:26 AM, portefeuille (99.60) wrote:

from semi-celbrities

by semi-celebrities

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#12) On May 17, 2013 at 2:32 AM, portefeuille (99.60) wrote:

tend

tend to

 

sorry, early morning over here.

 

 

will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.
will let everyone publish whatever nonsense they want to.

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