That’s an interesting point of view @raymon68. When you think about it, a business is only worth more than its Shareholder Equity Value when it’s future Return on Shareholder Equity (ROE) is greater than YOUR Required Annual Rate of Return! It’s quite simple really, but how often do you see businesses trading on high multiples of Book Value when they consistently deliver ROE less than 10%? I think owning these businesses at a PB multiple higher than 1 is a sure way of guaranteeing your returns will be less than 10%.

Any thoughts?

@Rick @raymon68

IMHO it depends on where the appropriate CoC lies. if you think you are going conservative by keeping it high you may just be buying risk not value--the story of post GFC. i think the coC and where it will normalise out has been the battleground of the last 10 years, post GFC. it has favoured those playing an ongoing lower structure, up until last year. additionally, IMO the 10Y interest rates are done, we may have seen the top. recessions drive yields lower. hope this makes some sense :)

@Solvetheriddle I am a little confused, but I think I get your drift. Are you saying that we might need to lower our Cash-on-Cash returns (CoC) expectations as yields are driven lower in a recession?

cheers,

Rick

@Rick yes basically thats it. in a low interest rate environment getting cost of capital correct is critical otherwise it wipes out the quality growth stocks as too expensive.as i said the 2012-2021 saw cost of capital continually decline , which was an unexpected move, so gave great returns to those who front ran this move ie bought growth. anyway thats history.

the current moves in the 10y are fascinating and one interpretation, which i agree with, is that long term yields have peaked as growth peaks out, making cyclicals risky and growth stocks more attractive. that is their earnings will hold in a downturn where cyclicals will not. as you can tell i can i cuold go on...and on....:)

Yes we have moved through Covid-19 some beneficiaries during the pandemic & a non - beneficial. You know we have had unprecedented Quantative Easing and bond programs dispatched to the banks and even the USA and Australian Federal Governments have thrown the cash at its constituents. So we got used to low rates monetary policy. The world Banking Governors - have the 'Bi plane lever: up - neutral - down. Currently the lever is down for a 2% to 3% base rate landing.

Is todays market more sophisticated? As the article alluded to the typical investor once waited for the morning paper to arrive then phone up the broker on your landline phone.

As the paper mogul says information is power acting on the information in a timely manner is powerful ( something to that effect )

" Modern day companies are valued on the intangibles like brands and networks" so yes businesses have evolved from tangible to intangible.

The ease of trading shares has also evolved, lots of timely information is available now in 2022. Next day Australians can trade on overnight FOMC reports ect.

Interesting how the fund manager has the mind set that there is a buy price and selling price. B. Graham quoted that the investor would be better off if his / her stocks had no market quotation at all. So if you can calculate the business intrinsic value its potential cash-flow and just buy the business and only look at the sell price on the day of selling. I thinking that is all good if you're calculations are good and the economy has no left field events happening.

As small retail investors we are nimble and have the luxury to trade on the short term themes and make some cash and. The other portfolio can have the more passive ( fund manager style 60/40 mix ) Ben Graham style of investor.

EOM