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Nearly 1 in 10 Stocks Trade Below Their Per-Share Holdings of Cash
By JLP | October 11, 2008
This little tidbit comes from this must-read article ($) by Jason Zweig that was in today’s Wall Street Journal:
Out of 9,194 stocks tracked by Standard & Poor’s Compustat research service, 3,518 are now trading at less than eight times their earnings over the past year — or at levels less than half the long-term average valuation of the stock market as a whole. Nearly one in 10, or 876 stocks, trade below the value of their per-share holdings of cash — an even greater proportion than Graham found in 1932. Charles Schwab Corp., to name one example, holds $27.8 billion in cash and has a total stock-market value of $21 billion.
Bargains? Probably. But, that doesn’t mean that the market won’t drop further before it stabilizes. The article mentions that we could—though unlikely—see the market drop another thirty to fifty percent.
It’s amazing at just how crazy things can get—both on the upside and the downside. It kind of blows holes in the whole efficient market theory. You can’t tell me that the markets aren’t overreacting.
Topics: Investing | 7 Comments »
October 11th, 2008 at 1:31 pm
This crystallizes the credit problem; there are MANY bargains out there but no one has the cash to borrow to invest. Why doesn’t a corporate raider buy out Charles Schwab and take the cash and sell off the assets?
The answer? NO ONE WILL LEND! It’s like the entire Picasso art collection for sale at $1.99 but no one has any cash on hand and no one is willing to lend anyone a couple of bucks for the deal of the century!
Timing is everything, those that have cash on hand will make a killing over the next few months when things return to normal.
October 11th, 2008 at 11:04 pm
I wouldnt borrow money to invest anyways… That is a BAD idea.. What I’m doing is just dollar cost averaging once a month using what I have left over after my bills are paid… plus it spreads my investing money out over time instead of just lump summing a ton of money, just in case the bottom hasnt come yet.
October 11th, 2008 at 11:16 pm
The markets aren’t overreacting nearly as much as the government is overreacting and/or would if in control of the entire market. Nothing is purely efficient. It’s a question of comparison and cost-benefits.
October 12th, 2008 at 12:34 am
Hehe, at the office we’ve got a pool going.
I’m in for 6800 +/- 50 before the election before sustained recovery.
October 12th, 2008 at 2:04 pm
Is there a way to invest in these 876 stocks effectively?
October 13th, 2008 at 12:33 am
Rick:
That’s why people need to SAVE. So they have cash to invest at an appropriate time. Credit is what got us into this problem in the first place.
Oliver:
No. Or at least, I seriously doubt it. Of course, if you have experience as an index structurer, I’m sure you could create your own. And if you do, I know of some companies in London hiring such people.
JLP et. al:
EMH is a fraud, IMHO Check out Andrew Lo’s AMH for a much more reasoned view. Investing really is still in the dark ages, given the interdependence on human emotion.
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