Stock market prices and how to profit from them was the subject of Chapter 8 of The Intelligent Investor by Benjamin Graham. In it, Graham identified 5 characteristics which are common to all bull markets from a study conducted between 1897 and 1949. They are:
- A historically high price level
- High PE Ratio
- Low dividend yields as against bond yields
- An increased amount of speculation on margin
- An increased amount of IPO’s of poor quality
Graham advised against using these characteristics to adopt a buy-low-sell-high strategy because not all bull markets will share these characteristics at the same time.
Nevertheless these observations which were obtained from ten complete market cycles from a “bear market low to bull market high back to bear market low” (pg 192 The Intelligent Investor) are a useful yardstick with which to get a sense of the valuation of today’s markets.
How The Mining Sector Could Make A Lot Of People Very Wealthy
I’ve deliberately chosen the mining sector since it has been going through one of the worst bear markets I’ve seen for any sector. Basically share prices in this sector since April 2011 to June 2013 lost more than 50% of their value on aggregate and from among the wreckage, there will be opportunities for investors to ‘buy low and sell high’.
Metals and Miners Since April 2011
A Yahoo! chart depicting the SPDR Metal & Mining Index ETF (blue) v the S&P 500 (orange)
We’ve already seen how the FTSE 100 is lagging it’s international counterparts such as the S&P 500 due to the large number of mining companies that are listed in London and make up the list of 100 largest stocks by market cap.
The FTSE 100 Year To Date
A Yahoo! chart of the FTSE 100 (blue) compared to The Dow Jones (orange) and The S&P500 (green)
More to the point I’ve chosen to share a 10 minute video interview between Cambridge House (a specialist resource investment event organiser) and Rick Rule chairman of Sprott US Holdings who specialises in natural resources companies.
First published on 26 May 2013, this video is an awesome reminder of how individual investors can start to value companies from the carnage of the mining sector’s bear market. Although Rule focusses on mining companies listed in Canada his wisdom can be applied to mining companies listed in the US, Europe and beyond.
Image: Stocks & shares 2