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The other thing that is missing from the formulas is the number of stock options
that are out there in benefit plans and bonuses. If you add that into the PE
ratio for MSFT the PE ratio becomes about 850. Doesn't anyone figure those
options will ever be exercised? These execs cash them in almost every time
their stock hits new highs and they figure that is it for a while. I wonder if
Eisner will let his options in Disney expire worthless or let them languish in
his 401k or other benefit plan. What about all those emplyees that receive
options instead of salary? Look at all the stock options floating around
Intel. I haven't the slightest idea how many, but I will bet that it would make
a substantial difference in their PE ratio if those available shares are figured
in the ratio. Ira
Earl Adamy wrote:
> 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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