Brian Dennehy and Elizabeth Franz on stage in a Broadway production of Death of a Salesman. Eric Y Exit / AP Photo
Brian Dennehy and Elizabeth Franz on stage in a Broadway production of Death of a Salesman. Eric Y Exit / AP Photo

Bargain buys offer bereft stockbrokers chance of salvation



You almost have to feel sorry for stockbrokers these days. When they are not being blamed for the downfall of modern society and accused of destroying all the wealth we spent the past decade of boom building up, they are taking second jobs just to try to make ends meet.

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Almost half of all the brokerages in this country have closed down since the bears came in and stopped all their fun, putting hundreds of hard-working salesmen out of work.

One local broker, from a once highly active firm on the Abu Dhabi Securities Exchange, revealed last week that he was still getting by on commissions he reaped in the heady days of 2006 and 2007. That means he hasn't had a meaningful quarter's returns for the best part of half a decade.

Even on Wall Street, things are looking bleak. WJB, a small but well regarded brokerage in New York, was forced to close a few days ago after a year of terrible commissions and the accrual of fairly hefty debts.

WJB's closure followed the high-profile shutdown of MF Global. The cash and derivatives broker's problems were manifold and will doubtless continue to shock and amaze as they are uncovered by forensic accountants going over the books.

But what really finished off the company, and many like it, was a dangerously low level of cash flow as clients willing to put hand in pocket to pay for a trade on any side of a deal became as rare as hen's teeth years ago.

But all that might be about to change and we will hopefully soon see that the death of this most vilified breed of salesmen might have been somewhat exaggerated.

Stocks all over the world are looking remarkably cheap. In a couple of weeks, as fourth-quarter earnings start rolling in, they might look even cheaper, as last year was pretty bad for just about every corner of the economy in every corner of the world. There were a few exceptions in Asia, but overall it was a bad three months.

As those doubtless terrible results come flooding in, share prices will more than likely fall again.

Far from getting even more depressed about the state of the markets and the diminishing value of their portfolios, though, I would expect many brokers and investors, those with some cash on hand at least, to draw a line in the sand and finally call a buying opportunity.

Not only are stock prices the lowest they have been in a long while, they are trading incredibly cheaply relative to earnings.

The price/earnings (P/E) ratio is a reliable old stalwart of the investing classes. The number often touted by analysts is sometimes referred to as a "multiple", as it shows the price an investor is willing to pay for a dollar of profits, or earnings.

So if a company has a price earnings ratio of 20 times, it indicates the market believes each dollar of earnings is worth US$20 in the share price.

Indexes have price earnings ratios in just the same way.

A quick look at some of the most popular catch-all global indexes - the S&P ASX 200 in Asia, the Dow Jones Industrial Average in the US, the S&P 500 and the Euro Stoxx 50 - shows a massive drop in P/E ratios over the past decade.

Back in 2000, just before the dot-com bubble burst, all of these indexes were commanding a multiple of about 20 times, or greater.

Today the same indexes command a multiple of about 10 times, give or take, while about 15 times - again on a rule of thumb basis - seems to be about the median.

That means on a forward P/E basis, you can buy into those indexes today at a 50 per cent discount to their peak at the turn of the century and about a 30 per cent discount to their perceived average price.

Bargains like that will not go unnoticed for long.

A strong first-quarter buying spree would do wonders for investors all over the world, not least in those brokerages struggling to keep the wolf from the door.

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Mia Man’s tips for fermentation

- Start with a simple recipe such as yogurt or sauerkraut

- Keep your hands and kitchen tools clean. Sanitize knives, cutting boards, tongs and storage jars with boiling water before you start.

- Mold is bad: the colour pink is a sign of mold. If yogurt turns pink as it ferments, you need to discard it and start again. For kraut, if you remove the top leaves and see any sign of mold, you should discard the batch.

- Always use clean, closed, airtight lids and containers such as mason jars when fermenting yogurt and kraut. Keep the lid closed to prevent insects and contaminants from getting in.

 

Our legal advisor

Ahmad El Sayed is Senior Associate at Charles Russell Speechlys, a law firm headquartered in London with offices in the UK, Europe, the Middle East and Hong Kong.

Experience: Commercial litigator who has assisted clients with overseas judgments before UAE courts. His specialties are cases related to banking, real estate, shareholder disputes, company liquidations and criminal matters as well as employment related litigation. 

Education: Sagesse University, Beirut, Lebanon, in 2005.