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Is P/E ratio the best thing to look at when deciding whether to invest or disinvest in the market? Right now the S&P 500 P/E ratio looks to be about average or slightly above
Is P/E ratio the best thing to look at when deciding whether to invest or disinvest in the market? Right now the S&P 500 P/E ratio looks to be about average or slightly above
This chart appears to indicate an "overpriced" P/E ratio around 1991-92. Yet, the S&P 500 continued to go higher and is currently 300%+ above the level it was in 1991-92.
So, I can't say the chart has much predictive value to me.
Is P/E ratio the best thing to look at when deciding whether to invest or disinvest in the market? Right now the S&P 500 P/E ratio looks to be about average or slightly above............
Looks that way, doesn't it?
And if you are buying the whole market by buying an ETF or something, then that would be good to know.
But what if you are buying individual stocks, and you don't expect the market to go down? That's true in my case, so P/E - To ME! - is not as important as PEG.
PE to Gain is calculated by taking the PE ratio (say, 10) and dividing it by the projected gain (say, 20% per year). In this case you would get a PEG of .5, which is pretty good. A PEG of 1 means the PE is equal to growth.
PEG plus a bunch of other things is a good way to judge individual stocks.
And if you are buying the whole market by buying an ETF or something, then that would be good to know.
But what if you are buying individual stocks, and you don't expect the market to go down? That's true in my case, so P/E - To ME! - is not as important as PEG.
PE to Gain is calculated by taking the PE ratio (say, 10) and dividing it by the projected gain (say, 20% per year). In this case you would get a PEG of .5, which is pretty good. A PEG of 1 means the PE is equal to growth.
PEG plus a bunch of other things is a good way to judge individual stocks.
PEG is P/E to growth. But growth is an estimate.
Books typically say to buy PEG ratio's below a certain amount. I have seen PEG ratio's at .1 or .5 and below and those stocks have performed horribly over time.
Same with companies who have had unfavorable PEG's of say like 2.5+ but have performed very well.
I still think that the MOAT of the company and technical analysis is where you need to be. I bought Chipotle just after it's IPO around $50/share and the P/E and PEG ratio weren't great, but that stock now trades over $400/share. I also purchase a lot of Visa right after it's IPO and when it traded down, I just kept buying. now its way up.
I think the companies moat and marketing power (monster energy drinks) has more value than any type of value investing analysis. My really big winners have almost all been like this. I do have some that are up multi hundreds of percents like ATW when I purchased at $13/share, but I figured deep sea drilling would be good for many years going forward and purchased it. that was more of a value play.
I say go with the obvious choices with positive cash flow and high ROE. When the stock gets hit, buy it and keep buying it. A company that took some balls to purchase like this was UNH, turned out well in the end. WLP was the same. CELG, GILD pulled back hard, up multi hundreds of percents.
Book Value too, very important to see if a company is under value. If a company is trading at below book, it means if they sell their assets, it will worth more than the market cap.
shillers p/e/10 says we are at fair value. classic p/e says we are just under.
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