The only kind of investments that I would recommend are those on which you have the time and patience to do your own research and investigate in depth. I wouldn’t say that all US executives are crooks or that there are no good US equity investments.

Undoubtedly, in today’s depressed markets, there are many great opportunities.

Most of the information you need to have is available on the Internet, in SEC files, and elsewhere. However, it takes a lot of work to ferret it out and really make an effort to understand what it means.

You don’t need to have a PhD in investment analysis to do your own research, just commonsense and a lot of patience and perseverance. I’m continually amazed at how much is available for free on the Internet. Free, that is, except for the time it takes to do the research.

We’ve set up a new website for collaborative research: Capital Market Wiki and we are looking for volunteer editors. Everyone is welcome.

The US has perhaps the best sources of free investment information in SEC files, but the SEC, assumes that investors are willing and able to dig through this vast material, and most are not.

I’ve spent a lot of time in foreign markets, but unless you live there, speak the language, understand the laws and politics, and, on top of this, are willing to do the research … forget it.

Regards,

Thank you for your generosity in offering this insightful, eye-opening site; it reflects a depressing reality that needs to be confronted.

After reading your site, I have decided to stay away from US equities, until I can determine a way to circumvent the corporate players’ shenanigans. What general class of investments do you recommend? Are there any countries whose corporate executives demonstrate fair play towards their common shareholders?

Thanks again.

This data comes from Federal Reserve flow of funds tables F102 and L102 on Non-farm, non-financial corporate business as of Q3 2006. I’ll e-mail you my spreadsheet.

(Readers can copy and paste series from the Fed flow of funds tables onto Excel spreadsheets by going to the ’screen reader’ section of the Fed Z.1 release web site: F102 and L102.)

Because the data comes from flow of funds tables, the numbers are different from actual accounting figures. In the case of buybacks, the data comes from line 38 of table F102 (Net new equity issues), which means that (since the figure is not broken down between new issues and buybacks) the number used to represent buybacks is actually understated.

Price-earnings and yield ratios are calculated with reference to line 42 in table L102 (Market value of equities).

After-tax profits are calculated by subtraction line 2 (taxes on corporate income) from line 1 (profits before tax - book) in table F102.

The quarterly figures are annualized estimates made by the Federal Reserve.

I understand that the Fed data for market value of equities refers to the end of the period, rather than average values over the period.

Because Fed data understates the volume of buybacks (by not breaking out new issues), I would say that actual PATAB is likely to be less than shown above.

Enjoyed your article “U.S. Equities: Wildly Overpriced or a Great Bargain?”

2 questions. 1) Do you have a spreadsheet with the data you used? 2) Did you use end of period (post buyback) shares in calculating the Price/PATAB rather than average outstanding shares?