The following letter was received from investmentu@investmentu.com.
I was check it out for more details. Obviously, it's one of the important consideration.
Floyd include in the email with the following message with the subject : " Favorite Ratio for Evaluating Stocks" Date: Wed, 16 Jul 2008 .
==> Professor Siegel's findings, which are the product of years of academic research, captivated the audience. Take a look at some returns that caught my eye...
His research proves that over time, stocks are a superior investment to all other asset classes. Over the long term, stocks have returned 6.8% per year after inflation. Whereas gold has returned -0.4% (failing to keep up with inflation) and bonds have only a 1.7% return. After taxes, the outperformance of stocks is even greater.
The P/E Ratio... With a Twist
Professor Siegel said that his favorite ratio for evaluating stocks is the expected rate of return. He calculated this with the formula 1/PE (Price to Earnings Ratio). For example, with General Electric (NYSE: GE) trading at a PE of 12.78, the expected return would be 1/12.78, or a 7.8% return.
Moreover, Siegel suggested buying high-dividend-yielding stocks. His research shows that much of the returns of the market are the result of compounding dividends. His example of a quality dividend paying stock was Philip Morris (NYSE: MO). It was an original member of the S&P 500 when it was created in 1957. And it's the best performing stock in the index since inception...
Thirty-three shares of Phillip Morris, bought in 1957 would be worth $8 million today. It goes to show the power of dividend reinvestment.
He argued that given a sufficiently long period, stocks are less risky than bonds. After a holding period of 10 years, the worst performance for stocks was -4.1%, and –5.4% for bonds.
With a holding period of 20 years, stocks have never lost money according to his calculations.
So as the major indexes continue to touch multiyear lows, hang tight. No one can tell you when stocks will move higher again, at least not with precision. But history shows us it will indeed happen.
In the meantime, just be sure to mind your trailing stops to protect your wealth. Here's how they work.
Good investing, <==
1 comment:
Hi Tun Tun Lin,
I just started reading your blog and really enjoy your posts.
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