Wednesday, December 10, 2008

Time to buy good quality shares?


September 1929 was a good time to sell. 1932 was a good time to buy. Image from: www.contra666.com/blog

"Over the past century in Britain, share prices have, in round terms, beaten inflation by an average of slightly more than 1 per cent a year... add in dividends of perhaps 3% a year, and the total annual rate of return looks rather more lively - say, 4% over inflation." (MONDAY VIEW: Taking a look in the rear mirror at share prices)

The Economist, 4 December 2008, asks Where have all your savings gone?

Over the last ten years, your savings have probably not done well.

1. Share prices are down.

"The value of global stockmarkets has shrunk by maybe $30 trillion, or roughly half." (Where have all your savings gone?)

2. House prices are down.

3. Low interest rates make bank deposits unrewarding.

In the year 2000, the global price-earnings ratio was 35. That means stocks and shares were expensive at that time. They produced a return of only about 3%.

Now, in December 2008, the global price-earnings ratio is 10. That means good quality stocks and shares are cheap. They can return 8%.

"Right now equities and corporate bonds are a better long-term bet than cash." (Where have all your savings gone?)

Is it too early to start buying shares?

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4 Predictions for 2009

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