Friday, March 02, 2007

Weeks like this separate the men from the boys

The headline says it all. I loved to see the sell off in the market this week, such sell offs are healthy, prices come up and come down. The Valueline universe of 1800 stocks was at a p/e ratio of 19.6 when the week began. This is high, the long term average of past 15 years is somewhere around 17. Reversion to mean is a fact of life and markets are no different. Own good businesses and the stock will take care of itself.

Meanwhile Warren Buffet's annual letter came out yesterday as usual a super read, he was less scathing than usual about the excesses of Wall Street although does take on the high fees charged by hedge funds. He calls it the 2 and 20 crowd (2% management fees and 20%of the profits) . Mr. Buffet has been buying United Healthcare (NYSE : UNH) and Ingersoll-Rand (NYSE : IR), Here is the post on Industrial stocks and IR that I wrote about late last year.

Just finished reading Hedgehogging by Barton Biggs, its another great read. Talks all about hedge funds, the thing that struck me the most was the pressure that the managers feel to deliver. The fact that many funds get the 20% only if they beat an index and makes the point that 20% of zero is zero. Additionally most funds have a high water mark i.e. in the following year they have to first recoup the losses and then deliver. Another great read!!!

4 Comments:

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great

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