Monday, July 30, 2007

US Market Cheapest vs Earnings Since 1991: A Lot Of Irony Here

Here is one for those of you who like irony. The S&P 500 currently trades for 15.4 times future earnings according to a Bloomberg report. That means that on a earnings basis (and isn't that what really counts?), the US market has not been this cheap in 16 years!!

I guess that explains why Berkshire Hathaway's (BRK.A) Warren Buffett has been initiating and adding to positions left and right recently. Now, about the irony part?

1991- We had a Bush family member in the White House
1991- We had a housing "bust"
1991- We were in a war in Iraq
1991- In April 1991, the Dow Jones Industrials crossed 3,000 for the first time ever. In 2007, the Dow crossed 14,000 for the first time ever.
1991- A Clinton announces their intention to run for the White House.
1991- Dick Cheney served the President (Secretary of Defense)
1991- The S&P crossed 400 for the first time ever. The S&P hit a record 1555 in July of 2007
1991- Court bars Jack Kevorkian from assisting in suicides. 2007, Kevorkian released from prison
1991 -Exxon (XOM) agrees to pay $1 billion to clean up after Exxon Valdez spill. In May, 2007, Exxon said it will appeal to Supreme Court a $2.5 billion punitive damage award from the spill.
1991- Pete Metzelaars is in a Super Bowl as tight end for Buffalo Bills. In 2007. Metzelaar is a coach for the Indianapolis colts

The good news? The bargain prices investors paid in 1991 lead to barrels of profits over the next decade and stocks embarked on a historic steady climb. What is interesting is that even though stocks in 1991 were at "all time record highs" and there was a war going on, because they were cheap relative to their earnings, they proved to have plenty of room to run to the upside and they did just that.

I have said it here before many times, ign ore the "noise" out there and just focus on earnings, buy cheap stocks, and hold on to them. It is a winners game.

blogger templates | Make Money Online