"My view (which I suspect you might agree with) is that what you pay today against what you can reasonably expect to get over a period of time, and how that compares with the prevailing cost of money for your investment time horizon, is all that matters in the end."
Yes, I do agree with you.
But when it comes to assessing IRR's on offer, by definition we need to deal in long-dated predictions of a great many different variables, which makes the forecast risks high - and hence, the assessed IRR somewhat unreliable, I think.
So, it doesn't require much in the way of sophisticated valuation theory to know that, while I might still recoup my capital, plus make a reasonable profit for my troubles if I today pay a multiple of 20 times for a stream of cash flows, my chance of creating wealth for myself is greater if I pay a 15 times multiple.
There was a time when I was able to buy TCL's beautiful, growing stream of cash flows at 15 times, compared to today's 20 times.
A large reason for this difference, I believe (as does everyone else, so there's nothing uniquely insightful that I am imparting here), is that there has been a lot of easy money slopping around the globe, which has resulted in a somewhat indiscriminate - and even reckless, in many cases - quest for "yield".
At one stage, when benchmark bond yields were 200bp (and falling), TCL was trading on a dividend yield of 7%, so a 500bp spread.
I don't mind those odds, and the relative safety net they provide.
But now bond yields are close to 300bp (and rising) and TCL is yielding 5%.
So, just a 200bp spread today.
So, sure, I can still buy TCL today and I might be OK on my investment over time.
But my allowable margin of error today has shrunk significantly.
And while I am not given to the making of macroeconomic forecasts, if you held a gun to my head and forced me to guess, I'd guess that if that 200bp spread is going to widen again, it won't be because interest rates magically start falling again.
Which can mean only one thing...
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Last
$13.32 |
Change
0.150(1.14%) |
Mkt cap ! $41.18B |
Open | High | Low | Value | Volume |
$13.25 | $13.37 | $13.21 | $82.86M | 6.223M |
Buyers (Bids)
No. | Vol. | Price($) |
---|---|---|
1 | 38 | $13.18 |
Sellers (Offers)
Price($) | Vol. | No. |
---|---|---|
$13.39 | 1000 | 1 |
View Market Depth
No. | Vol. | Price($) |
---|---|---|
1 | 38 | 13.180 |
1 | 75 | 13.170 |
1 | 39 | 13.150 |
1 | 1 | 13.120 |
1 | 953 | 13.110 |
Price($) | Vol. | No. |
---|---|---|
13.390 | 1000 | 1 |
13.400 | 5069 | 3 |
13.430 | 2545 | 1 |
13.450 | 5112 | 2 |
13.460 | 742 | 1 |
Last trade - 16.10pm 29/03/2024 (20 minute delay) ? |
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Last
$13.31 |
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Change
0.150 ( 1.18 %) |
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Open | High | Low | Volume | ||
$13.24 | $13.37 | $13.22 | 626051 | ||
Last updated 15.59pm 29/03/2024 ? |
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