Quote Originally Posted by Phaedrus View Post
The market giveth - and the market taketh away....



An illustration of why exit strategies are important.
Thats an amazing chart eh Phaedrus ... something for fundamentalists to envy

In round numbers lets say CAV has gone from 170 to 550 (trebled) and then gone all the way back to 170 ... so shareholders return in those 8 years has been the dividend.

Why do fundamentalists envy such a graph .... because it shows the sentiment of the market.

In 2000 (start of P's chart) CAV earnings were about 20 cents a share / it was on a PE of 9 and trading at 1.5 times book value (all pretty respectable for a manufacturing company)

At its peak of 550 odd in 2003 CAV earnings were 29 cents a share (only 50% more than a few years before) / its PE had expended out to 16 and it was trading at 5 times book value (bit rich eh)

Now today earnings are what they were in 2000 ... about 20 cents a share / its PE is about 9 and it is trading at about 1.4 times book value

So 'fundamentally' nothing surprising about todays price is there. CAV shareprice has not been dragged down by the malaise of the market .... it is 'fundamentally priced' about right

Just highlights what happens during boom times and when on fundamentals things get 'overvalued'. CAV earnings over the last 10 years have generally been in the 20 to 30 cents per share (reached 32 cents in 2004). Cav has paid out a fair chunk of earnings in dividends so its equity has only increased from $60M TO $80M in the last 8 years or so. CAV earnings have consistently covered its cost of capital but not excessively or to the extent it deserves to trade much above 1.5 times book value. Pretty solid performing company ... what you would expect from a good old fashioned manufacturing company

so the market was exhuberant in 2003 and 2004 ..... CAV multiples expanded and the share price shoot up to 550 ... on fundamentals overvalued ..... and probably a genuine value investor (if there is such a beast) would have bailed .... ironic ..... about the same time as the likes of phaedrus would have bailed as well


What happens in secular bear and bull markets it is the multiples that change .... when stocks like CAV reach truly overvalued levels and when 100 or 200 day moving averages signal it take the winfalls and run ... think of it as present from god.

Using Phaedrus's phrase 'the market giveth ... but don't let the market taketh away'

Interesting stuff