Oliver Ward’s Earnings Growth – Why The Market Comes Home
By Dave McLachlan
For those of you who missed Oliver Ward’s speech at the ASX recently, he gave a quick rundown on a great way to value the overall market.Â
Why does it work? Because price tends to (over time) revert to the average earnings growth, as shown on the chart below (click the chart to enlarge):
As you can see, in 2007 price was a long way above its average, but came back down to be in line with the average over the bear market of 2008.
The following note is directly from the offices of Oliver Ward:
“I just updated the market PE and EPS this morning. It is important to note that end of Jan we had a PE on the ASX of 14 and this month PE has risen to 15.7 times on the ASX. The earnings on the ASX have come off a further 10% this month, EPS hovered around $330 for the last 6 months but has this earnings season dropped to $295 on the ASX. This puts EPS down some 21% for the 12 months.
The ASX PE is now slightly above its historical Mean and the market is modestly over valued at this time. This suggests that at current time we can expect lower than average returns in the market going forward, however, the shorter term indicators suggest we are in a wealth accumulation mode and should at this time stay invested. Although, be cautious if and when the market direction and momentum changes direction.”
Extremely wise words – we will be keeping an eye out for that change in market momentum for you as well in our weekly ASX Market Watch, also on this site.
Happy Trending!
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March 24, 2010
Tags: earnings growth, Market Watch Weekly, oliver ward, stock market Posted in: Articles On Building Wealth
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