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Mr. Klarman on interest rates


giofranchi
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At times when interest rates are unusually low, however,

investors are likely to find very high multiples being applied to

share prices. Investors who pay these high multiples are dependent

on interest rates remaining low, but no one can be certain

that they will. This means that when interest rates are unusually

low, investors should be particularly reluctant to commit capital

to long-term holdings unless outstanding opportunities become

available, with a preference for either holding cash or investing

in short-term holdings that quickly return cash for possible

redeployment when available returns are more attractive.

 

- Margin of Safety

 

 

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” 

- John Maynard Keynes

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I've been thinking about the interest rate environment's effect on stock prices as well.  I agree that low interest rates should prop up the multiples of most companies in theory, but I do not see outrageous multiples right now.  I think it is because people have low expectations for growth.  Interest will rise either due to improved economics or due to lack of investor confidence in central banks.  Option 1 should have a net effect of 0 on the stock market and Option 2 will be bad for the stock markets ( I think disastrous because this option could shock rates).  So caution should be used in theory.

 

I do not really let this effect my investing though.  There are still quite a few opportunities imo.

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Guest wellmont

the equity markets have so far done a good job figuring out that these current low rates are bogus. however, if stock prices continue to rise, the bulls may start to use the low rates as a justification for further upside.

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