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Quite likely the author of the article failed to incorporate interest rates
into his analysis. P/E or its reciprocal Earnings Yield needs to be compared
to interest rates to know whether it is cheap or expensive.
Earl
----- Original Message -----
From: JW <JW@xxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Sent: Sunday, May 23, 1999 1:32 PM
Subject: MKT: - Article - High P/Es=Low Risk
> Anyone care to comment on the article below? Seems like the author is
> saying that as long as P/E ratio's stay high, there is nothing to worry
> about.
>
>
> I am continually amazed at how violently investors react against this
> notion, particularly value investors. To avoid considering it seriously,
> they grab at any straw to disavow that a very natural bias is wrong. In
> rebuttal, they claim the phenomenon occurs because ultra-high P/Es come
from
> suppressed earnings posted at the end of a recession. Not quite. This
> sometimes happens, but it is far from universal. Investors' vehemence that
> ultra-high P/Es must have a high risk is just another aspect of the
> perverseness of the market.
>
> Will ultra-high-P/E stock markets always carry a low risk? I don't know.
But
> they will until the majority of investors shed their belief that high- P/E
> markets are highly risky.
>
> --Kenneth L. Fisher, the founder and CEO of Fisher Investments, a
Woodside,
> California, money-management firm and a Portfolio Strategy columnist for
> Forbes.
>
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