Thinking Secular Bear when analysing Stocks fundamentals
A follow up to the above articles....
We all know crystal ball gazing is a dangerous sport....however analysing past events normally keeps you on a solid footing...hmmm sometimes though writers come unglued :mellow: but this time it only shows human behavioural thinking at a time of a economic recovery
I find it a valuable exercise to go back to past history and re-read these types of articles and find out what went wrong.
George Boubouras, author of 5 reasons why shares will rally in 2011 will probably wished he never wrote this article on the ASX.com site back in December 2010.
His article showed all the charts etc and looked real good and well researched so what happened when he expected the AllOrds to be at 5600 by now. I wonder if that environment of the time affected his reasoning....seeing an economic recovery in progress it is tempting to add today's variable into a tomorrows assumption....a mistake we see or hear a thousand times each day.
I can see George now saying that the current economic environment is worse now than I expected ..yes correct... it is obviously much worse than then and the market has corrected itself according...but was Georges expectations back in December 2010 set too high..Could this had been picked up as a fault at the time of writing...In hindsight we can safely say yes.......Hmmmm..hindsight..
However ... past history is scattered with over and under expectations and these are factored into secular behaviour.......ahhhh I hear George say when someone tells him that he forgot to add this secular factor into his crystal Ball gazing. Yes no hindsight to blame here..this should have been picked up at the time of writing.
Ok...to save making this post even bigger that readers will turn off ..lets use only one secular example in a diagram he mentioned.
Chart 2: Australian equity valuations well below long-term average.....
How many times have I heard a Fundie say that the stock prices are well undervalued...(remember this Article was written in December 2010 when the ASX was uptrending past 4900)..... Now the shares today are cheaper at 4100 and downtrending and company profits are still up there where they were back in 2010...so its even cheaper now???...Markets crazy or what???
People tell me ..."why carry on about secular cycles when investing in the present time? whats the point??"...Well..the point is the pure example below
No the ASX200 is not crazy.... in reality, back in Dec 2010 the stocks were very overvalued!!!! not undervalued as George writes....The ASX200 is in a secular bear cycle and as such that market will operate below that PE long term average of 15 and the PE will keep falling probably to 8 or less before that Secular Cycle changes back to Bull and the PE ratio will then uptrend.
His chart has ASX200 looking very undervalued
http://i458.photobucket.com/albums/q...011_image2.gif
His chart amended by me to allow for the ASX200 Secular Bear market Status...notice that his last orange ring showing "Valuations simply discounted too agressively" now looks like they weren't....looks very different now...eh? This chart shows ASX200 was still a little overvalued back then.
http://i458.photobucket.com/albums/q...Ratiochart.gif