Ironic Expert

When I first read Van Den Berg’s 2004 lecture. He mentioned so many potential problems that could exist in US economy after a bubble bust in 2000-2003. I almost fully agree with him because a big bubble does need more time to heal.
 
But close to the end of his lecture, he said his best indicator of overall market is Value Line median P/E. I started to find this guy isn’t clear on the basics. P/E for a year is not really a good indicator for a general market position for long term investments. In economic cycles, P/E tends to have wild swings, but long term investment need to take these cycles into consideration, and generally take average profitability of 10 years as a indicator of evaluation. For example, the median P/E in 2008 actually is higher than 2007 because corporate earning reduced a lot in recession , but can we say stocks in 2008, after 33% drop is still more expensive than 2007?  

Now after reading his 2006 lecture, it becomes even more funny. 

In 2006’s lecture to his clients, he suddenly turns from extremely bearish in 2004 to extremely bullish (or at least "appears" to be so), and told his clients that this is an extraordinary opportunity in every 15-20 years to buy big blue-chip companies because their yield is same as treasury bond, and they got earning potential in additional to the yield. He also said the big companies’ stocks are extremely cheap.

This is really ridiculous. First, he "forgot" all the potential problems he mentioned himself in 2004. Second, he only sees that big companies have growth potential in additional to earnings yield, but bond doesn’t have growth potential, but he forgot big companies’ earning is also not fixed, and could go to negative at recession, but treasury bond’s return doesn’t change. Normally, if big companies’ return is same as treasury during a recession, that may be a good value, but if those two are the same at the peak of bull market (or well into the bull market), that is not really cheap (especially if the treasury yield is very low because of low inflation), since the corporate earning has a large room to go down in down turns.

I would say the Dow at mid-2006 is not very expensive, but it is not really cheap either. I guess Buffett felt the same since he didn’t buy a lot of stocks in 2006 and didn’t say the stocks became cheap then.

This guy is either missing the basics, or try to fool his clients. I think he has both. But no matter what, he and his century management are on my black-list now 🙂

You can see a so-called expert with a fairly good track record in 30 years and listed as a guru in gurufocus.com could be such a silly person, what about the analysts on the street…

 
Here is what Berkowitz said on how to choose a money manager (and I totally agree):
 
1.You want to find someone who has had a good paper trail of investing, a record, you know, of someone who’s done very well.
2.you want to make sure that whoever you’re going to entrust has a proven level of honesty and integrity so you don’t have to worry.
3.you have to make sure that you have to have a basic comprehension of the strategy the person’s using so that when times get tough, as they
inevitably do, you’re not gonna get shaken loose at the worst possible time.
4.you have to assure yourself that there’s a level playing field. Everyone has to be on the same side of the fence so to speak. Everyone should
do well together. (This means the manager should have a good percentage of personal wealth invested in the same fund, so he gets punished if the fund has bad performance).
 
 
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