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S&P 500 PE Ratios
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S&P 500 PE Ratios
by mattduke » Wed 24 Jun 2009, 23:12:27
Last edited by mattduke on Thu 25 Jun 2009, 08:55:57, edited 1 time in total.
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mattduke - Intermediate Crude
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Re: S&P 500 PE Ratio At Record High!
by dukey » Thu 25 Jun 2009, 08:34:21
can someone translate this into something an idiot can understand
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dukey - Intermediate Crude
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Re: S&P 500 PE Ratio At Record High!
by mattduke » Thu 25 Jun 2009, 08:42:22
$this->bbcode_second_pass_quote('dukey', 'c')an someone translate this
Despite the fact that stocks have come down, they are more expensive now than ever.
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mattduke - Intermediate Crude
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Re: S&P 500 PE Ratio At Record High!
by mattduke » Thu 25 Jun 2009, 08:54:05
Alright alright, settle down. Those must have been trailing pe's. Here are the forward pe's.
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mattduke - Intermediate Crude
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Re: S&P 500 PE Ratio At Record High!
by IslandCrow » Thu 25 Jun 2009, 12:53:01
$this->bbcode_second_pass_quote('dukey', 'c')an someone translate this into something an idiot can understand
First graph: The profits made by the companies have crashed at the fasted rate in about 100 years.
Second graph: The P/E is the price of the shares divided by the profit. From 1935 to 1975-85 the ratio was between about 7 and 22. Then it started rising- This means that shares are more expensive related to the profit that the company makes. This is fine if one is holding shares to sell again at a higher value, but it is bad news if one holds shares to gain a regular income from dividends. The last jump up, reflects the fact that while share prices have declined, the profits have falled even more. If this is a temporary move and profits jump back up in the near term then I don't think it matters much. But if the fall in profits is not a temporary happening then it means that share prices are grossly over valued and they should drop like a stone to reflect the underlying profit of the companies.
If share prices drop (say in the DOW 100) then this is something that the average person in the street would understand and start to panic about. As panic makes things worse one can hope that a) profits bounce back b) enough fools will buy shares at grossly inflated rates so that the indexes don't drop.
We should teach our children the 4-Rs: Reduce, Reuse, Recycle and Rejoice.
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IslandCrow - Heavy Crude
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