Harvesting Profits With Patience And Careful Attention To Valuation

[Ronald Muhlenkamp]

Ronald Muhlenkamp: Harvesting Profits With Patience And Careful Attention To Valuation

What you have to realize is that P/Es went from 17 to 7 in the '70s for a reason. Most people like dividends, or they like interest payments, because they trust that the money is coming back to them. They don't trust that they'll get paid for the money that companies retain in book value. I think that distrust grew out of the experience of the 1970s, when the great question was, “Earnings are up, how can my stock be down?” Everybody had been taught that 17 was a normal P/E and that if earnings went up, stocks would go up. In fact, a research study I've been carrying around for 30 years literally said just that.

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