Update No. 140 – 01/12/13

The downside to things being generally stable in the Global economy is there are not as many crises available to discuss in the weekly update in an attempt to keep it more interesting than just a reproduction of the weekly closing figures.

I tweeted this week that the S&P500 trades on under 15X forward earnings, the link that provided that fact was here (an excellent blog by the way). The current consensus 2014 earnings expectations for the S&P500 are for $120.55 of earnings. The index closed overnight at 1807.23, that equates to a 14.99X ratio. Historically, this is not terribly expensive. Given the forward expectations for the US and Global economy, it could even be quite reasonably priced. There are a number of other measures commonly used to discern market-wide valuation. Based on Price to Operating Earnings, the US market is currently trading at 17.2X below its average over the last 25 years of 17.8X. However another measure I like is the ‘Shiller P/E’, which compares prices to the 10 year inflation adjusted earnings, and based on this measure the market is getting expensive again, though still remains below the recent average, while being well above the very long-term average. In truth I think, probably around 80% of the time it would be hard to distinguish whether the market generally is good value, with about 10% at each end where it should be pretty clear that it is either very cheap or very expensive. While it’s in that middle 80%, judicious selections of the correct businesses to own should ensure your results are generally satisfactory. At the very expensive end, even buying very good businesses could generate mediocre results, while that perhaps 10% of the time when things become clearly cheap, the equity investor who deploys capital into even fairly mediocre businesses will generally create outstanding results. With the rare combination of a cheap market and outstanding businesses, extraordinary results can be created.

The e-mail with the ‘offer to invest’ will be sent next weekend, for any potential investors who have not asked to have their name added to the e-mail, please contact me through the week so I can ensure you are not overlooked – Tony Hansen 01/12/13

EGP Fund No. 1 Pty Ltd. Up by 21.02%, leading the benchmark by 7.94% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 65.32%, leading the benchmark by 41.04% all-time (April 1^st 2011).

^{*1 after 31May 2013 dividend of 2.333 cents per share plus 1 cent per share Franking Credit}

^{*2 calculated based on dividends reinvested}