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high p/e ratios as an indicator of overvalued companies Again, you say that as if there was some kind of agreement on what a "high" p/e ratio is. But what
by ArtTimeInvestor 1y ago
high p/e ratios as an indicator
of overvalued companies
Again, you say that as if there was some kind of agreement on what a "high" p/e ratio is. But what is it? Since you multiple times mentioned "historical averages", I guess you assume that above the historical average means "high". But that is a big statement. How do you back it up?
Imagine an investor in 1988 (the middle of the p/e chart you linked to) who took your approach. From their perspective, the historical average p/e of the S&P 500 is about 15. Would they have played the market by selling over 15 and buying under 15, they would have missed almost all of the nice long rally that came in the decades after.
- _heimdall 1y agoAgain, I'm not claiming there is a "right" p/e ratio. High is relative though, and relative to historic ratios the market is overvalued roughly on the scale of the leadup to the dotcom bubble. Are you arguing that isn't the case, or that just doesn't matter and isn't a good indicator? > they would have missed almost all of the nice long rally that came in the decades after. I wasn't saying to buy and sell as the ratio goes above/below some specific threshold. More importantly though, this is ultimately cherry picking. You can always look back at historic data and define a start point, or a start and end point, to make an argument work. That has little, if any, weight on predicting what will happen in the future. I'm being pretty careful here to not claim to know what prices or the economy will look like in the future. I'm simply sharing my read on p/e ratios, what my own take away from they is, and where what I see as historic outliers are.
- ArtTimeInvestor 1y agoYou said "company values seem completely unhinged from reality". What do you mean by that?
- _heimdall 1y agoI could have been more clear there for sure. I don't understand the multiples being offered to companies today in the stock market. Specifically I'm thinking about multiples relative to revenue, earnings, or profit. When I'm investing in a business I want to know how quickly I can get my money back, and how risky I think the investment is relative to my expected gains. When I'm investing in baseball cards I want to know how much the next person will pay me for it. The stock market seems much more inline with that today, and in any reality where stocks are meant to be considered investment that seems disconnected or entirely unhinged.
- ArtTimeInvestor 1y agoYou don't understand the p/e ratios of any company? You mean they all seem much to high or much too low to you? Let's talk about a specific company then. Which one have you looked into recently?
- _heimdall 1y agoI was talking about the average p/e ratios in the market today. Though they are around 1.7 standard deviations above historical trends, so while there will be some that aren't high relative to historic trends most are.
- ArtTimeInvestor 1y agoNow we are back to the theory that above the historical average means high. I give up. We are talking in circles.