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With the G20 meeting behind us.
Everybody was all smiles that the worlds problems have been solved.
Well.....
First of all the G20
is not really the G20 and furthermore I think we are
not much closer to solving the problems than before the summit.
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Lower interest rates being pushed
lower by governments printing money is not the solution as it was
not high interest rates that put is in this mess it was most likely
too low interest rates that led to the development of bubbles across
the world in all possible assets.
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It was also not unregulated hedge
funds that caused the problems. Their sudden rise and fall was as
much a bubble phenomenon as house prices in Las Vegas
-
It was not short selling or even
naked short selling that caused the problems. The short sellers took
immense risk (with short selling your loss is unlimited but your
profit limited to 100%) to point out the ridiculous developments
that had been taking place in the world markets.
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Getting rid of mark to market
accounting is also not going to solve the problem. It is probably
just going to make the cleaning up of the banks more difficult as
two banks holding the same asset can have different valuation for
it. Causing one or both of them to not be willing to sell it at a
loss. Further postponing the cleaning up of their balance sheets.
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Banker bonusses have also not
caused the problem and with the lack of profits the problem will
solve itself. Focussing on the bonusses is completely the wrong end
of the stick. It may appeal to some voters but it will not solve the
problems of the banks
What is going to help us all get out
form the current turmoil?
I think the answer is unfortunately
more pain as the over borrowed community we are living in pays off
its debts and gets back to a more sustainable level of debt. This
unfortunately means that asset prices, homes, apartments, art, sport
cars and watches, have to decline to a level where a willing buyer
and seller can transact.
The hardest part is for the holder of
the asset to get comfortable with the idea of the lower value of his
asset and it changing hands at this price again.
Any attempts by government support to
ignore or paper over this step is unfortunately not going to do us
any good.
What does this mean to us as
investors?
But
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It will be impossible to buy at
the bottom
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You will have to buy when the news
is the most negative
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You will have to be positive on
the long term future of the world to take advantage of the
opportunities
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P.S. A media company in the wrong country at the wrong time...
This month the company I found for subscribers is located in France.
In terms of the size of companies I look at its quite large with a market value of €1,72 billion.
The company owns the most popular television channel in one of the largest European countries but is also very active in new media channels including the internet, tablets and smart phones.
In spite of this, the market views it as an old media company that is soon going the way of the dinosaurs. However, when you look at its financial statements you will see what a great business it is.
Its balance sheet is solid with no debt, and it generates a high amount of free cash flow and profits. This enables it to pay a dividend of just under 7% that can easily be maintained and has room to increase.
When I recommended the company it was trading at 7 times free cash flow, 7,7 times 2010 earnings and 5,6 times EBIT to enterprise value.
I am sure you will agree this is undervalued.
To immediately get your hands on this value investment idea (for as little as €39) click here.
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