Archive for December, 2006

  • First They Came for the Reindeer….
    , December 2nd, 2006 at 12:48 pm

    Peepen.jpg
    Yikes! The War Against Christmas is much worse than I thought.
    (Hat Tip: Agatha.)

  • A Look at the Very Long Term
    , December 1st, 2006 at 12:27 pm

    Through yesterday, the S&P 500 is up 12.2% for the year, and 14.2% including dividends.
    Going back to 1925, the stock market is up over 300,000% (I’m using numbers from Ibbotson Associates, plus I’ve added my own to fill in the gaps). Over the last 80 years and 11 months, the stock market has gained an average of 10.24% a year, that’s including dividends. Inflation has averaged just over 3% a year, and the after-inflation return of equities works out to 7.16% a year. That means that, on average, stocks double their value, in real terms, every ten years.
    Here’s a graph of the after-inflation total return of stocks going back to 1925. It’s a logarithmic chart, and I’ve included a 7% trend line for perspective:
    image301.png
    I think it’s interesting that the market soared above its trend line in the mid-50s, and stayed there for about twenty years. It then sank below it for the next several years. In fact, hugging the trend line, as we have recently, seems to the unusual pattern. It’s also interesting that 1987 now only appears as a little blip.
    Here’s the chart again, but this time I divided the stock market line by the trend line:
    image303.png
    We’re still smack in the middle of the long-term trend.

  • A Buyout of Home Depot
    , December 1st, 2006 at 10:14 am

    It’s official. Private equity has officially gone bonkers.
    The big news today is that some investors are interested in buying Home Depot (HD).
    That’s right, Home Freakin Depot. Private investors are thinking of buying a Dow component. Dear lord! And it’s one of the real ones, not Alcoa.
    In my mind, Home Depot is still cheap. The earnings have been disappointing, but nothing horrible. HD is going to make about $6 billion this year. It pays a good dividend (raised by 50% twice this year), and the company is working to alter its business model.
    The question we have to ask is if HD can change from a company that grew 18% a year to a company that will grow by 10%-12% a year. I think Nardelli realizes the problems HD faces.
    The Home Depot expects 12% sales growth next year, and EPS growth of 4%-5%. But then what?