west Posted October 12, 2014 Share Posted October 12, 2014 Hi all. In the last week I've finally been sitting down and reading Security Analysis. It's great! I wish I would have read it earlier. It's much more modern in its thinking than I would have ever expected. The problem though is much of the stuff they source is very out of date. So you can't really look into it. For example, in Chapter 41, Graham and Dodd talk about how the market will value companies in different industries by using different E/P ratios, saying (with a warning): Different "multipliers" are used for different sorts of enterprise, but these distinctions are themselves subject to change with the changing times. - Security Analysis, 6th Edition, p526-527 In the footnotes they source Common Stock Indexes by Alfred Cowles as a study of these historical ratios. The problem is, that book is almost eighty years old! Does anyone have a more modern study of industry ratio shifts? I'd love to read about how they've changed over time. Thanks in advance! Link to comment Share on other sites More sharing options...
west Posted October 13, 2014 Author Share Posted October 13, 2014 This isn't super helpful (like I said, it's pretty out of date), but you can download the old Cowles book mentioned in Security Analysis for free here: http://cowles.econ.yale.edu/P/cm/m03-2/ Link to comment Share on other sites More sharing options...
scorpioncapital Posted October 13, 2014 Share Posted October 13, 2014 Is the different multiplier due to investor certainty - or uncertainty of the stability of earnings in various industries? Or is the message that these multipliers are just tradition since a shoe company and a biotech company that have the same profitability for many years should technically be worth the same to an investor. Link to comment Share on other sites More sharing options...
Green King Posted October 13, 2014 Share Posted October 13, 2014 views of ratios could change over time. so using that was a reference can cause mistakes. It is better just view them as bonds and adjust accordingly in terms of risk based on your own analysis. If you are not sure have a large margin of safety or pass. Link to comment Share on other sites More sharing options...
Packer16 Posted October 13, 2014 Share Posted October 13, 2014 Examples of Graham's multipliers can be found in Stock Selection for the Enterprising Investor: the Appraisal Method section 1949 Intelligent Investor pages 150 to 151. Graham lays out a range of multipliers of 10 to 20 based upon "quality". This is similar to the approach I use to identify cheap stocks amongst particular industry groups. In later editions, he develops the 8.5 + 2G formula to estimate a "fair" multiple Packer Link to comment Share on other sites More sharing options...
west Posted October 13, 2014 Author Share Posted October 13, 2014 Examples of Graham's multipliers can be found in Stock Selection for the Enterprising Investor: the Appraisal Method section 1949 Intelligent Investor pages 150 to 151. Graham lays out a range of multipliers of 10 to 20 based upon "quality". This is similar to the approach I use to identify cheap stocks amongst particular industry groups. In later editions, he develops the 8.5 + 2G formula to estimate a "fair" multiple Packer Thanks Packer. I guess I was more interested in looking how multiples have shifted over time than how to use them or come up with them for valuations. I wanted to understand how investor psychology has shifted over time so I can (hopefully) better understand where different industries are at now in terms of that psychology. For example, I don't know, but I have strong feeling that telecom ratios were very high in the late 90s and early 2000s. And since then they've only drifted down? It would be interesting to see, say, if we're at a nadir, or anywhere close, for telecom/cable multiples. Link to comment Share on other sites More sharing options...
oddballstocks Posted October 13, 2014 Share Posted October 13, 2014 Examples of Graham's multipliers can be found in Stock Selection for the Enterprising Investor: the Appraisal Method section 1949 Intelligent Investor pages 150 to 151. Graham lays out a range of multipliers of 10 to 20 based upon "quality". This is similar to the approach I use to identify cheap stocks amongst particular industry groups. In later editions, he develops the 8.5 + 2G formula to estimate a "fair" multiple Packer Thanks Packer. I guess I was more interested in looking how multiples have shifted over time than how to use them or come up with them for valuations. I wanted to understand how investor psychology has shifted over time so I can (hopefully) better understand where different industries are at now in terms of that psychology. For example, I don't know, but I have strong feeling that telecom ratios were very high in the late 90s and early 2000s. And since then they've only drifted down? It would be interesting to see, say, if we're at a nadir, or anywhere close, for telecom/cable multiples. I think the best way to find this is to get the historic M&A multiples per industry over the years. Industry P/E's trend towards M&A multiples. I have no idea where to get this data. Link to comment Share on other sites More sharing options...
oddballstocks Posted October 13, 2014 Share Posted October 13, 2014 Found this: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html Link to comment Share on other sites More sharing options...
west Posted October 13, 2014 Author Share Posted October 13, 2014 Found this: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html I wish Damodaran had this data going back to the 1950s :) On the M&A data, there's mergerstat and CapitalIQ, but both are not things I have access to... Link to comment Share on other sites More sharing options...
Scorps Posted October 13, 2014 Share Posted October 13, 2014 West, Don't know if this helps but found this site on statistics on mergers and acquisitions: http://www.imaa-institute.org/statistics-mergers-acquisitions.html#TopMergersAcquisitions_NorthAmerica Link to comment Share on other sites More sharing options...
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