Price-Earnings historically low
People - Investing
Sunday, 09 November 2008 08:14

In good times I often read pessimistic stories about Price-Earnings ratios. Usually the claim is that the average PE ratio is too high, at least higher than the long term average PE.

Last month (October 2008) most stock markets went down a lot. PE ratio's of many companies are now around 6-7. Strange enough I don't see many stories about the PE ratio lately.

Even if profits half next year these PE's will still be around 12-14. The latter PE is roughly the long term average PE. So if the crisis continues then stock buyers are getting shares at an average PE. But if profits rebound then any investors these days can cash in hugh profits within a few years.

This is probably the reasoning value investors like Warren Buffet do, which have announced that they are buying now.