ARE EXPENSIVE
MARKETS
NECESSARILY A
BAD INVESTMENT?
The refrain every investor has been
hearing for a long time now is that
the equity market is expensive. The
FTSE/JSE All Share Index is currently
trading at a price-to-earnings (PE)
multiple of close to 18, while it's
long term average is 15.
This has made many investors wary
of committing money to the stock
market. Research clearly shows that
from these levels the likelihood is
that returns could be lower.
However, investors should also
be wary of letting short term
noise affect their long term asset
allocation. Just because equities are
expensive, does not mean that the
alternatives are better.
Anthony Rocchi, portfolio manager
at Rexsolom, makes this point and
argues that it is not always irrational
to pay a high PE. He has conduc Y