GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Kenneth Fisher: Takeover Targets

April 04, 2007 | About:

Four and a half years and still going strong. The bull market that began in late 2002 is far from over. Pessimists will tell you that the good times have to stop, that after four years the market just has to be due for a correction. But that's because the pessimists don't look at what is driving this market.

The driver is the relationship between earnings yield (the inverse of a price/earnings ratio) and bond yields. When earnings yields are bigger than bond yields, institutional investors can make a profit by using borrowed money to acquire shares of stock. The process can continue for years, until equity prices are bid higher or the cost of money gets higher.

Read the complete column


Rating: 2.1/5 (9 votes)

Comments

buffetteer17
Buffetteer17 premium member - 7 years ago
Fisher says: "The driver is the relationship between earnings yield (the inverse of a price/earnings ratio) and bond yields. When earnings yields are bigger than bond yields, institutional investors can make a profit by using borrowed money to acquire shares of stock. The process can continue for years, until equity prices are bid higher or the cost of money gets higher."

Now, Fisher is a macro trend predictor, not a stock picker. And up till recently I've been a stock picker in my poor imitation of the Warren Buffett tradition. But I read the article by Van Den Berg. Now Ken is saying the same thing. It makes sense. Many of the mega-caps have yields (E/P) about the same as the 10-year treasury. This just can't be right. Someone with a long time horizon could just borrow money and invest it in stocks. Someone like me ;-)

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK