willynill

Indexes Could Test Support Levels Today

David, I'll double check this, but I think the earnings are the latest 12 month earnings of the stocks currently in the index. Earnings of stocks no longer in the index are not included.


On Sep 01 07:49 PM David Van Knapp wrote:

> The high PE right now is a result of BOTH current prices and trailing
> earnings. That is obvious from the calculation: (current price) divided
> by (trailing earnings) = PE.
>
> Thiazole is correct that the PE ratio is based on past earnings of
> stocks that are no longer in the index. S&P has replaced more
> than 40 companies in the past 12 months. Further , the current price
> used in the calculation is the current price of the stocks in the
> index now.
>
> So the PE is a mish-mash. Each investor will need to decide how relevant
> this number is to forward-looking investment decisions. I am with
> thiazole, it is not very relevant. There are plenty of other valuation
> metrics available than this historically aberrational PE.

Indexes Could Test Support Levels Today

thiazole, I don't follow your logic on this one. The ridiculous PE is a RESULT of this huge rally. Yes, it is a trailing PE, but it is a measure of the prices now. In order for the PE to get down to, say, 20 (Graham and Dodd would never buy a stock with a PE higher than 20), the earnings would have to increase by a factor of 6 (500% increase!) if the price stays at this level. I'm betting on a big drop in the P, not such a big rise in the E.


On Sep 01 03:52 PM thiazole wrote:

> I figured that is what he meant, but it obviously doesn't work, does
> it. It would have suggested that you miss this huge rally and that
> it was much better to own before the crash. If you use trailing P/E
> as an indicator on whether to buy or not, you are using backward
> looking data to make a purchase that you plan to hold in the future.
> That explains why it gives the wrong signal. What do I care that
> GM, Ford, Chrysler, AIG, etc, etc, lost billions in the 4th quarter
> of 2008? What does that have to do with what they will do in 2010?
> You do realize that the ridiculous P/E ratio that you quote is a
> result of what happened in Q4 08 and not what is happening right
> now, right? Hell, the companies in the S&P right now aren't even
> the same companies that were in the S&P back then - the worst
> companies are gone, but they are still being counted in the trailing
> P/E...

Indexes Could Test Support Levels Today

I think he means expensive relative to earnings. With the S&P PE now at over 130, I think he is correct.


On Sep 01 11:45 AM thiazole wrote:

> If you really believe that stocks are more expensive now than in
> 2007, it exposes a very serious flaw in your price analysis.