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Are we in a price/earnings sweet spot?

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Comments (12)
  • steven russo
    , contributor
    Comments (201) | Send Message
    P/E ratios are meaningless with an interest rate environment like this. Whats the alternative? Stocks are the only place to get a return on your money that will beat inflation.
    22 Sep 2013, 08:36 AM Reply Like
  • The Long Tail of Finance
    , contributor
    Comments (980) | Send Message
    p/e ratios are not meaningless, even in this environment.
    22 Sep 2013, 09:15 AM Reply Like
  • steven russo
    , contributor
    Comments (201) | Send Message
    meaningless might be an overstatement, but there has never been an extended low interest rate environment like the one we are in now over the past 70 years.
    22 Sep 2013, 11:30 AM Reply Like
  • wade3
    , contributor
    Comments (10) | Send Message
    You are absolutely right......They are very meaningful....
    22 Sep 2013, 01:43 PM Reply Like
  • circesdad
    , contributor
    Comments (10) | Send Message
    Cute concept but Silver bullets are elusive. The P/E ratio is not concerned with meaning. So neither of the comments above is true. P/E is a ratio of two independent variables. It measures changes in the perceived value and relative worth of an underlying. The numerator, price, is dynamically set by folks like us in a market. The denominator reports the capability of the underlying to generate wealth. We pay up to gain access to increasing wealth, buy shares. When those wealth expectations change, we increase or decrease a position. Quantifying expectations has been, is and will always be an imperfect art. Showing regard for history is a polite behavior. As our keepers remind us though, past performance is no guarantee of future results. Carpe Diem
    22 Sep 2013, 10:23 AM Reply Like
  • GaltMachine
    , contributor
    Comments (1539) | Send Message
    This is so misleading as to be hilarious regardless of whether Tobias is correct or not the statement above is not supportive of it:


    "and found that investing in stocks when P/E ratios were in the 14-16x band provided annual returns of 14.6%."


    "According to Reuters' This Week In Earnings, the forward four-quarter (Q2/13-Q1/14) P/E ratio for the S&P 500 is 14.5."


    Comparing FORWARD PE's with CURRENT PE's is like comparing Apples and Lemons.


    From that article:


    "Above 16x they swiftly collapse again, on a median return basis. And if anyone ever calls the market a screaming buy on a P/E of over 20x, scream back at them. (And keep your money away!)"


    The current PE according to is 19.5. which Tobias did not mention in the article strangely enough. According to the article this would then be one of the worst times to invest.


    Given the importance of the current PE number to his premise, why didn't he mention it?


    It's easy enough to find for even a neophyte like me not to mention an "expert" like him.


    So to answer the question posed on this stream's title, according to the article that's a big fat "NO".


    22 Sep 2013, 11:34 AM Reply Like
  • earthtodan
    , contributor
    Comments (335) | Send Message
    Galt, thanks for the critical read. The research may be quick and easy to do but that doesn't mean SA readers like me scanning articles will do it!
    22 Sep 2013, 12:12 PM Reply Like
  • dancing diva
    , contributor
    Comments (2638) | Send Message
    It's actually more complicated than that. The p/e of 19.5 is based on "as reported earnings", not the more commonly used "operating earnings". Over the past few years operating earnings have been 10-15% higher than as reported, so it makes the market look cheaper if you use operating earnings to calculate the p/e; more expensive if the as reported earnings are used.


    But I agree, the level of 14-16 is meaningless without saying how it's calculated - and whether based upon the trailing, concurrent or forward p/e of either the operating or as reported earnings. And some use the forward 4 quarter and others the forward for 2014 estimated earnings; the latter making the p/e look lowest. Essentially there are 6 different levels of p/e's usually quoted depending upon the combination used. Right now the cheapest p/e would be about 14.5, the most expensive 19.5. Is it any wonder there's confusion?
    22 Sep 2013, 05:39 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5033) | Send Message
    @ Galtmachine & Dancing Diva


    Thanks for the insights. I knew something was off here but am too knew to have figured it out.
    22 Sep 2013, 08:45 PM Reply Like
  • wade3
    , contributor
    Comments (10) | Send Message
    You are absolutely right...they are very meaningful....
    22 Sep 2013, 01:43 PM Reply Like
  • Placebo Investment Advice
    , contributor
    Comments (3635) | Send Message
    Here's another forecasting indicator that is as useful as the above mentioned Citi data mining project:


    Barry Ritholz and Josh Brown, financial bloggers and CNBC contributors, just started a wealth management company--as the current raging bull market reaches 4.5 years of age.


    In March of 2006, Ron Insana left his CNBC anchor job to run a hedge fund 3.5 years into a raging bull market. A vicious bear market began 1.5 years later.


    Therefore, based on my proprietary "media pundit turns money manager" contrary indicator, the next bear market will begin sometime in the next 0 to 1.5 years.
    22 Sep 2013, 04:46 PM Reply Like
  • JackBarton
    , contributor
    Comments (28) | Send Message
    Market Watch:
    "The days of easy money may be over."
    Not really:
    Check out this post!
    23 Sep 2013, 02:13 AM Reply Like
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