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What is it This Time?

Is the current state of the equity markets best described as here it goes again or as it is different this time? A trip through memory lane will help. The abrupt end of the tech boom was because a lot of the equity buying was based on hot air. You will recall that valuations were on ideas, or perhaps on multiples of sales and every so often profits. The sky-high equity valuations could not be sustained.

Then along came the fall of 2008 [it really was the fall and a fall ]. Markets were enjoying the enthusiasm generated by greed and dubious behaviour . Odd financial instruments searching for higher yields appeared on all sides. Investors were bombarded with unusual concepts on how to realize higher returns and reduce risk at the same time. That all came crashing down including many of the world’s financial institutions when the slight-of-hand artists were exposed to the reality of capital markets

Only when an unprecedented world wide injection of liquidity saved the day, at least for a short time. More recently another anvil has fallen. The large hang over of government debts is impairing corporate profits which translates at the very minimum to slower growth.

This time it comes down the health and well being of the corporations. This time balance sheets, return on shareholder’s equity, earnings growth, equity price relative to growth , dividend yield and the smart deployment of capital really do matter.

These are and always have been important parts of our investment criteria. We stay the course established by a long-term view and are not swayed by fads and short time considerations.

Thanks for reading!

I would love to hear your thoughts. Drop me a line in LinkedIn or contact me directly.

While you are here why not try one of my other articles.

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