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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Investment Dilemma!!

Investment Dilemma!!

Go down  Message [Page 1 of 1]

1Investment Dilemma!! Empty Investment Dilemma!! Thu Feb 09, 2012 11:28 am

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Why should anybody invest in companies that are above 10X PER when interest are around 12% and heading North.

By investing in a company with 10XPER you are paying 10 times more than earnings which is similar to 10 year recovery period. By investing in a deposit that yields 12% p.a. interest you could recover your investment in (100/12)= 8.3 years.

Which investment is better! Share your views!



Last edited by Quibit on Thu Feb 09, 2012 3:22 pm; edited 2 times in total

2Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 11:43 am

Leo

Leo
Manager - Equity Analytics
Manager - Equity Analytics
deposit : cheers Basketball drunken sunny sunny sunny
what am i doing with Shares affraid

3Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 11:46 am

greedy

greedy
Manager - Equity Analytics
Manager - Equity Analytics
@Quibit wrote:Why should anybody invest in a companies that are above 10X PER when interest are around 15% and heading North.


Better comparison is between deposit rates and PE Ratio. Because available alternatives for an investor are bonds and bank deposits. Bank deposit rates are not 15% at the moment it is below 8% at present.

Average Weighted Prime Lending Rate (AWPR) is 9.98% (6 months rate) and monthly rate is around 11.5% this week.

Average Weighted Fixed Deposit Rate (AWFDR) is 9.11% and six months rate is around 7%.

http://www.cbsl.gov.lk/htm/english/_cei/ir/i_4.asp


So.... at the moment PER below 10 is attractive compared to interest rates prevailing.






Last edited by greedy on Thu Feb 09, 2012 11:47 am; edited 1 time in total

4Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 11:46 am

WildBear


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
In capital markets, a x10 PE stock can become a x15 PE, stock within no time or at least medium term 1-2 years, which will give you a 50 % return.



Last edited by WildBear on Thu Feb 09, 2012 11:49 am; edited 1 time in total

5Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 11:48 am

sriranga

sriranga
Co-Admin
Calculation wise the argument got fact.
In share market investment has time frame. Trading we need to go with the trend.
If we are panicking share market investing or trading is not possible, better to go for FD.
IMOH still in CSE some options are available.
We need to do our own home work before investing or trading.
Do not rely on others facts and advice.( Those may be suitable for them not for us)

http://sharemarket-srilanka.blogspot.co.uk/

6Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 11:55 am

sapumal


Vice President - Equity Analytics
Vice President - Equity Analytics
What about if rupee is going to fall ? You think you will get 12%. But adjust it with 3% devaluation. Overall it is 9%.

Asset with good return (PE above 5) are good.

Also do you think 15% is long term interest rate ? I think it is to collect rupee from market and to stop exponential credit growth
When credit expansion controlled devaluation allowed (restrict import and credit) again interest rates will go down

7Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 11:57 am

K.Haputantri

K.Haputantri
Co-Admin
Agree with you Shri. Ability to take risks is amply rewarded in the share market. Those who have no such ability may opt for safer placesto park their money.

8Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 12:05 pm

airborne

airborne
Equity Analytic
Equity Analytic
Hi.. Good one, even I wonder why, then again most of us want to get rich quick. 10% a day is too good to be lost on 10% per annum. Some of us also may be sadists and like the pain when prices fall. Very Happy
By the way a 12% return compounded takes only just over six years for a 100% return.

9Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 12:23 pm

greedy

greedy
Manager - Equity Analytics
Manager - Equity Analytics
@airborne wrote:Hi.. Good one, even I wonder why, then again most of us want to get rich quick. 10% a day is too good to be lost on 10% per annum. Some of us also may be sadists and like the pain when prices fall. Very Happy
By the way a 12% return compounded takes only just over six years for a 100% return.


The last point you are talking about reinvestment of interest income (compound). If we look at a company in srilanka..

1) It'll continue to make profits (like interest from deposits)
2) The earnings of a company will grow at XX% (that is not available in deposits coz interest won't grow)
3) The earnings can be reinvested (Like interest is compounded)

So a company with PER below 10(TTM) may pay back quicker than deposits. Btw, deposit rates are not 12% its around 8%.



10Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 12:31 pm

sapumal


Vice President - Equity Analytics
Vice President - Equity Analytics
@greedy wrote:
@airborne wrote:Hi.. Good one, even I wonder why, then again most of us want to get rich quick. 10% a day is too good to be lost on 10% per annum. Some of us also may be sadists and like the pain when prices fall. Very Happy
By the way a 12% return compounded takes only just over six years for a 100% return.


The last point you are talking about reinvestment of interest income (compound). If we look at a company in srilanka..

1) It'll continue to make profits (like interest from deposits)
2) The earnings of a company will grow at XX% (that is not available in deposits coz interest won't grow)
3) The earnings can be reinvested (Like interest is compounded)

So a company with PER below 10(TTM) may pay back quicker than deposits. Btw, deposit rates are not 12% its around 8%.

Fixed deposits don't give one time gains, revaluation gains. one word not protected from inflation. It is also a risk

11Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 1:01 pm

airborne

airborne
Equity Analytic
Equity Analytic
Agree with you sirs..Sapumal and greedy.
Being a devils advocate..FDs still gives us guaranteed cash in hand, where as a company with a PER of 10 and a 50% pay out ratio (which is high) yields only 5% dividend or cash.
And we have to hope management does well and the economy does well, and the management increases its dividend. Or their is some smart person who wants to buy our shares at a higher price Smile

12Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 1:34 pm

greedy

greedy
Manager - Equity Analytics
Manager - Equity Analytics
Yeah... Deposits will give a guaranteed return less the inflation...

A deposit of LKR100 with an average inflation of 4% per annum will have purchasing power of LKR67 at the end of 10th year.

But if the same LKR100 invested in some other assets, will have same purchasing power assuming asset prices moves in line with inflation SmileSmileSmile

13Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 2:47 pm

sriranga

sriranga
Co-Admin
@greedy wrote:Yeah... Deposits will give a guaranteed return less the inflation...

A deposit of LKR100 with an average inflation of 4% per annum will have purchasing power of LKR67 at the end of 10th year.

But if the same LKR100 invested in some other assets, will have same purchasing power assuming asset prices moves in line with inflation SmileSmileSmile


Totally agree with you.
Just to add a point to your fact.

Please see below.

@sriranga wrote:
According to Official data's in Sri Lanka the buying power decreased to 25 times comparing to 1980 cost of living index.
Please find attached inflation Data.

Investment Dilemma!! Inflat10

Source: http://www.indexmundi.com/sri_lanka/inflation_rate_(consumer_prices).html

http://sharemarket-srilanka.blogspot.co.uk/

14Investment Dilemma!! Empty Re: Investment Dilemma!! Thu Feb 09, 2012 3:36 pm

greedy

greedy
Manager - Equity Analytics
Manager - Equity Analytics
Thank you Sriranga, Here we can see an LKR100 bank deposit in 2007 may have lost half the value by 2010 (the capital). Though that level of inflation may not repeat again!!

15Investment Dilemma!! Empty Re: Investment Dilemma!! Fri Feb 10, 2012 2:31 pm

airborne

airborne
Equity Analytic
Equity Analytic
Nice chart sriranga. Thanks

16Investment Dilemma!! Empty Re: Investment Dilemma!! Fri Feb 10, 2012 10:26 pm

WildBear


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Stocks are the best asset class which can hedge against inflation.

17Investment Dilemma!! Empty Re: Investment Dilemma!! Fri Feb 10, 2012 10:32 pm

Kosinna


Equity Analytic
Equity Analytic
@WildBear wrote:Stocks are the best asset class which can hedge against inflation.

How about Lands, gold etc..?

18Investment Dilemma!! Empty Re: Investment Dilemma!! Sat Feb 11, 2012 2:19 pm

greedy

greedy
Manager - Equity Analytics
Manager - Equity Analytics
@greedy wrote:
@Quibit wrote:Why should anybody invest in a companies that are above 10X PER when interest are around 15% and heading North.


Better comparison is between deposit rates and PE Ratio. Because available alternatives for an investor are bonds and bank deposits. Bank deposit rates are not 15% at the moment it is below 8% at present.

Average Weighted Prime Lending Rate (AWPR) is 9.98% (6 months rate) and monthly rate is around 11.5% this week.

Average Weighted Fixed Deposit Rate (AWFDR) is 9.11% and six months rate is around 7%.

http://www.cbsl.gov.lk/htm/english/_cei/ir/i_4.asp


So.... at the moment PER below 10 is attractive compared to interest rates prevailing.






My apologies I have ignored Fixed deposit rates offered by banks recently...... My answer was based on Average Weighted Deposit Rates and Average Weighted Fixed Deposit Rates (AWFDR) published by CBSL

For more clarification of interest rates. NTB special rates are...
5 year (at maturity) - 16.00% p.a.
6 year (at maturity) - 16.00% p.a.
5 & 6 year (monthly paid) - 11.00% p.a.

However, someone to earn this interest, he/she has to lock their funds in fixed deposits for a period of five or six years!! Won't equity market (CSE) out perform all other assets in 5 years time frame?

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