Newspaper article THE JOURNAL RECORD

The Lament of an Old-Fashioned Investor

Newspaper article THE JOURNAL RECORD

The Lament of an Old-Fashioned Investor

Article excerpt

NEW YORK -- The lament of the old-fashioned investor sounds today like that of the worried clergyman: How do you find your way in an environment where values don't count?

The old-fashioned investor, for example, once could estimate the value of a company's shares through such indicators as price- earnings or price-equity ratios. These ratios were time-tested.

In a marketplace where for years investors had been willing to pay 14 times annual earnings, for example, a profitable, growing, well- managed company with good products might be a buy at seven times. It might, at least, have been worth looking into, which more than incidentally is what old-fashioned investors did before buying. You never bought hastily, no more than you'd sell in just a few weeks. That was before time sped up, which was back in the pre-1990s. Back then, companies earned money by being efficient, by cutting expenses, managing capital, developing products and growing slowly. Smart investors also diversified, if they could afford to do so. They bought a variety of stocks so they wouldn't be vulnerable to a downturn in one. And then they waited patiently. There was little disagreement about all this. You invested only after wary investigation; you watched each quarter-point price change; you waited patiently over the long haul, usually for years. History had shown this was the way to go, and people like Benjamin Graham, the father of modern securities analysis, were to be ignored at your peril. They had laid down the rules; you obeyed. You probably studied Graham's teachings, just as Gerald Perritt studied them while earning a doctorate in business administration. Graham preached that the surest way to capital erosion was to pay too much for the stock of a good company, says Perritt, a still savvy investor and investment adviser. …

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