The Time to go against the Crowd

I read an article in the business times over the weekend and i tot i will share it with you.

An interview with Longtime stock market champion Jeremy Siegel has revived my value investing approach again. He is the author of a book "Stocks for the Long Run, 4th Edition", which talks about a study in the US mkt going all the way back to 1802, using data from several sources.

Over that period, he found that the stock mkt outperformed every other asset class except for one. It was found that in stretches as long as 20 years, long-term govt bonds have sometimes outperformed stocks. But as holding periods lengthened, the stock mkt has almost always pulled ahead.

If you are more industrious, you can even boost your returns by focusing on dividend-paying value stocks and investing globally (looking at the emerging countries of that era).

To top it up even more, positive returns become more probable (higher % of +ve returns) in subsequent years when stocks are bought cheaper than average measured by PE ratio.

That is very encouraging for times like that - where the earnings of companies have been rising but stock prices remain at attractive PE ratios with all the bad news (euro debt crisis, persistent high unemployment in U.S. & the possibility that China will fall).

As Professor Stiegel says: "It's exactly times like this, when bearish sentiment has brought down valuations, that your chance of strong returns in the following years is greatest."

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