Some comparison

Recently I got hold of some old lectures of Walter Schloss, a renowed value investor who was only noticed by Wall Street when Warren Buffett mentioned his name in "The superinvestors of Graham and Doddsville". One of his letters talks about overvaluation in Blue-chip stocks sometime around May 1956. He talks about four companies namely, General Electric, Dow Chemical, Minnesota Mining (3M) and Minneapolis Honeywell. Here is a snippet from the article:

Dow chemical, based on its current price, is selling at 49 times is earnings for the past 10 years. Similarly, Minnesota Mining is presently selling at 61 times its last 10 years earnings, 51 times its last 5 years earnings and 32 times its 1955 earnings.

One of the four companies (General Electric) is distributing nearly all its current earnings and still only yields 3.1%.

How this can be compared with our current valuations? See some of my previous post on overvaluation in FMCG and Pharma here. I am repeating the table here with some additions:

Share	Market Cap (INR Cr)	TTM P/E	P/E of 10 Year Average EPS
3M India	3860	41.23	87.5
ABB	16525	58.4	61.8
Asian Paints	26950	30.6	96.1
BHEL	116900	27	67.8
Bosch	18870	25.37	51.5
Colgate	11275	24.8	66.5
Crompton Greaves	19500	22.7	78.2
Cummins India	14450	32.8	65.9
Dabur	18509	35.69	82.25
Exide	12760	25.85	87
Godrej Consumer Products	9860	29	83
HDFC Bank	100000	34	91.9
Infosys	159650	25.95	55.7
Marico	7550	32.6	70
Nestle	30630	43.7	94.4
Titan	13400	46.75	164.35

Even companies like Bajaj Electrical, Hawkins cooker and TTK Prestige are trading at 60-70 times last 10 years earnings. Nestle, which nearly pays all its earnings as dividends, yields just 1.55% at the current price. Remember that the price-wise correction wasn't very severe in US. But over the next 24 years, i.e. till 1980, the index just managed to double from 500 to around 1000, a return of less then 3% compounded annually. Investor would have got dividends though to satisfy himself. May God Bless Indian Investor at this time.

It appears to be a financial axiom that whenever there is money to invest, it is invested; and if the owner cannot find a good security yielding a fair return, he will invariably buy a poor one. But a prudent and intelligent investor should be able to avoid this temptation. - Benjamin Graham