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Value Investing: Tools and Techniques for Intelligent Investment by James Montier

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Chapter 34. Buy When it's Cheap – If Not Then, When?[34]

  • Is valuation alone enough of a reason to buy equities? In the short term, valuation isn't a binding constraint. Cheap stocks can always get cheaper, and expensive stocks can always get more expensive. However, it is the primary determinant of long-term returns. Thus with the UK and European markets currently trading at revulsion level valuations of 10× Graham and Dodd PEs, there is a compelling investment case for a long-term investor.

  • Even better news is that buying markets when they are cheap limits the downside for a patient investor. Historically, investors haven't ever lost money on a 10-year horizon when they purchased equities in the lowest quartile of valuations.

  • However, as Keynes noted, long-term investment 'is so difficult today as to be scarcely ...

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