Bill Sykes' Newsletter
from America.
(Summer Addendum #2 - 2002)
An ex-Brit gives his views-(without fear
or favor)---of the American Scene
26th of July 2002
As I have a few of days of leisure before leaving for a
couple of weeks in Florida, I thought that the time has
come to for me to add a few comments on the World financial
situation, and have appropriately entitled the subject matter,
“All about Money”
Please forgive me for providing an amateur interpretation
of the ways of the stock market.
The previous Administration had a slogan: “It’s
the economy stupid”. Our current President and his
administration would be well advised to take heed of that
slogan.
The men who broke the bank at Monte Carlo.
Well, not exactly Monte Carlo but the financial
situation worldwide.
Over the last couple of years or so, personal greed has
encouraged certain company corporate executives and investors
who bought shares in those companies to gamble away their
money in such a reckless fashion that investing in those
companies became a volatile gamble better suited to the
gaming tables at Monte Carlo or Las Vegas.
I recall that the judicious investor of the past, researched
the company that he/she wished to invest money into with
great diligence to ensure that that the company employed
Corporate Officers of the highest integrity, and that the
products of the company were not only manufactured to the
highest standards but were saleable items that would bring
a reasonable profit to the company and ultimately “fair”
dividends to the investor.
In those days the investor relied a great deal on an honest
presentation by the company of its Quarterly Balance Sheet.
I remember, not so many years ago, when a company’s
P/E ratio, (profits to earnings ratio), was a measurement
of their investment quality.
In those days, good companies had P/E rations of around
say sixteen or less, and any company with say a P/E ration
of thirty or more was considered to be of questionable investment
grade.
The reader must realize that I’m not a professional
investment guru and that my comments are based purely upon
my investment strategies of yesteryear.
But then came the Dot Com companies where an IPO, (Initial
Public Offering), when it came to market, (and here I’m
talking about the United States Stock Markets), was priced
at say $30 and that very morning the stock opened at say
$60 and by the end of the day closed at say $120. The P/E
ratio would sometimes exceed 600. (so obviously there was
certainly a great deal more profit than earnings).
This was not investing, this was pure investor gambling
greed and it was pretty obvious to any one with a shred
of common sense that these prices could not be sustained
and the bubble would eventually burst and leave many investors
penniless and the company employees out of a job.
It would appear that it all boils down to the words of the
song “The Gambler” made famous by Kenny Rogers,
“You’ve got to know when to hold them and know
when to fold them”.
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