Dear Capitalists

Mr_Lineberry's picture
Submitted by Mr_Lineberry on Mon, 2020-03-09 21:47

My fellow capitalists there is no need to panic about recent events; it's just the free market working.

The collapse of the oil market, down 27%, is being portrayed by the ignorant media as a bad thing - although why petrol prices falling from $2.17 to $1.60 is a bad thing is unfathomable to me. The sharemarkets of the World have also dropped quite significantly in the last couple of days; this too is actually a good thing.

It may surprise some of you, especially certain members of my family, to learn I've been in cash - and out of shares - since October. When making investments I follow a strict and simple criteria when deciding which stocks to buy; if a company doesn't meet my criteria I do not invest. Share prices had risen so much in 3 years - making many of us huge tax free profits, as nature intended - that by last October it was almost impossible to find any company which met my criteria; there were no bargains to be had other than some small beer stocks which are too lowball for someone like me to bother with.

So I sold up everything, went into cash, and played the waiting game. I must confess during December and January I was genuinely wondering if I had it all wrong as the Dow rises another thousands points. Had things 'changed'? was there now some new epoch whereby I would never make another investment? Self doubt isn't something I normally suffer from Sticking out tongue - but for about six weeks I was starting to 'wonder' if I'd made the biggest cock up ever.

Let me take a moment of your time, dear reader, to explain how sharemarkets work; just bear with me for a moment.

Take a hypothetical company; let's say it is making $1 million per year in profits; let's say it pays out $300,000 of that million as dividends to its shareholders; let's say the company has 10 million shares in existence.

The way share prices are valued in order to know if they are cheap or expensive is by what is known as the price earnings ratio (do not panic; keep reading; all will be clearly explained in a moment). Let's say our hypothetical company has a share price of 80 cents per share. This would mean the company is valued at $8 million dollars (10 million shares at 80 cents each). This $8 million is 8 times its earnings (its profits) so the price earnings ratio is 8.

If the share price was $1.25, valuing the company at $12,500,000, the price earnings ratio would be 12.5; if the share price was $2.00 the ratio would be 20 (and so on).

What has happened during the Trump sharemarket boom is share prices have shot way way up, making price earnings ratios way out of kilter with reality, valuing the average company's shares far higher than they are actually worth.

To give you some examples from the often quoted "Dow Jones Index" - a month ago Home Depot had a price earnings ratio of 30, Coca Cola at 35, Microsoft of nearly 40, Johnson and Johnson 31, McDonalds 27, Proctor and Gamble 68(!). There is nothing fundamentally wrong with any of these companies; they are huge, profitable, and likely to be around indefinitely, but their shares certainly were not worth such high prices.

Over the last week or so - and particularly today (as I write this) - the share prices of these and hundreds of other companies have fallen significantly from what they were a month ago..... back down to the level where an investor would see them as a good investment. A particularly 'smart' investor (ahem) will give it another couple of weeks to see what happens - with any luck the market will drop another 20% hahahahaha!!

Imagine being able to vacuum up Nike shares for $60 each, or McDonalds at $70 each, or American Express at $80 a share - huge bargains which will have you laughing all the way to the bank in years to come.

To go back to our hypothetical company, it is as if their share price had risen all the way up to, say, $2.20 (a price earnings ratio of 22) and has now dropped to $1.50 (a ratio of 15) on its way down to a more realistic share price of, say, $1.20 (a ratio of 12). Tough titties for greedy b*ggers buying at $2.19, but great news for you.

So my point being - now is the time to sit tight, do not panic, do not buy into the doom and gloom written by impecunious journalists who haven't the money to be investors themselves, and wait for major bargains to fall into your lap in due course. No one is going broke, a great depression isn't on its way, the World is not ending, it is simply a free market at work cleansing itself of the expensive prices and replacing them with bargain prices. Healthy; purifying; a great opportunity.


Great

Mr_Lineberry's picture

News: I have an actual customer.

First once since March 18th and I was thinking of having him stuffed and mounted. Or sent to a museum specializing in mythical creatures such as unicorns or Bigfoot.

In addition to playing the share markets of the world, i publish a magazine in Sydneytowñ which has been the bane of my life since 2006. Alas it (to the frustration of the Australian taxman) never seems to make a profit despite being half full of display advertising; I know - gutting.

Anyway, I have decided to crank the bloody thing back up again for a July issue. All jokes aside, the lockdown in New South Wales has cost a lot of money - vast numbers of customers haven't paid their bills for the February issue (and no money to do so), the April and June issues had to be abandoned. Complete pigs' breakfast.

But all things considered there appears to be a sense of optimism in Sydney business circles. Ringing around people the last few days - customers, suppliers, acquaintances - to gauge whether carrying the magazine on is worth doing, everyone is far more positive (and to some extent less broke) than New Zealand.

And now I have a customer! haha! So we are off and running, and the future for Australia is fairly rosy and it has a pro business government.

Watching

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Duncan garner and the AM Show where it seems the government budget deficit will be $30 billion. Not only that but government debt will soar from $70 billion to $170 billion.

Appalling!

Thank goodness i am not a taxpayer; a good little slave obediently paying for such madness. I have finally seen the benefits of no capital gains tax! Long may it (not) continue.

Sort of have to wonder what sort of a man works his guts out only to hand over 1/3 of his money to the state to fund their fiscal insanity? I simply don't understand.

Steady neddy, now is not the

Mr_Lineberry's picture

Steady neddy, now is not the time to do anything rash. I will let the brilliant Dan Thompson take it from here.
https://youtu.be/uQqmcAGUyqk

This

Mr_Lineberry's picture

Chinky virus really is having a marvelous effect on the financial markets - creating huge numbers of bargains around the World - and rooting numerous parts of the NZ economy. Pity it's all a hoax to scare people.

Air NZ is firing most of its staff (what a shame); motels, hotels, restaurants are all about to go bust (humbling the most arrogant, up themselves wankers in the country) as tourism has basically come to a halt; various events have been cancelled/banned. All wonderful things to have capitalists rubbing their hands together. With any luck the standard of service at Hotels and Restaurants will dramatically increase as people who are basically servants FINALLY learn their place, their correct station in life, and start treating their Masters as nature intended.

I have long, long, long said that NZ is basically finished as a first world country and this may well be the start; the beginning of the end. I find it all great fun to watch from the sidelines, people who were so arrogant and up themselves when I was in central Otago and the Lakes District a couple of months back are all completely rooted and will beg - beg - for customers by this time next week Sticking out tongue (karma is a b*tch, isn't it?), and it is going to get even more fun when a god-almighty property crash occurs and really humbles the middle class.

Serves them all right, too! and I have no sympathy haha!

As for budding capitalists seeking invest in bargain priced shares and gorge themselves on tax free profits for years to come.... be patient; now is not the time to be doing anything premature.

Oh

Mr_Lineberry's picture

look! the coming Great Depression and end of the World seems to have been ....postponed Sticking out tongue haha!

https://www.foxbusiness.com/ma...

Our

Mr_Lineberry's picture

dear friends over at Blaze TV have devoted today's episode of 'The News And Why It Matters' to the fall in the markets...

Presumably

Mr_Lineberry's picture

nobody on this website would be stupid enough to think I have given anybody "investment advice", or somehow or other "touted" the buying of shares in Nike, McDonalds, or American Express; but we are not necessarily living in a World of "men".

There are childish people around (*sigh*) who have spent years wondering why their lives are one failure after another, so I shall issue a disclaimer for all the poofy wanker set membership.....

Please do not take anything written on this post as Investment advice, nor should you buy any stock mentioned here - but you should take your hand off your....(nevermind)

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