The PE10 is a useful ratio that aids the investor in determining the relative price level of the aggregate stock market. But as discussed on this site a few days ago, the metric is far from perfect, as the arbitrary use of a 10-year period can bump up or push down the measurement for normalized earnings, thereby biasing the ratio. Another major weakness of the PE10 as a tool for making historical comparisons has to do with a change in how corporations have returned money to shareholders.
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More frauds are being uncovered in China. This article tells the story of one hedge fund manager who is being sued for what appears to be a factual report. Some snippets:
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The PE10 is increasingly becoming a common method for value investors to determine whether the broader market is cheap or expensive. Not only does this method have a logical appeal to it, but data suggests that the magnitude of the market's subsequent 10-year returns is related to its PE10 level.
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Some time after you've purchased a stock, you probably have a pretty good idea as to whether you made a good decision or not. This is because you likely follow the stocks you have purchased fairly closely. This feedback mechanism allows you to fine-tune your stock purchase criteria so that you don't make the same mistakes again. But often, some of the best lessons to be learned come from the stocks you didn't buy, but considered buying!
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SmartPros (SPRO) provides training solutions for various markets. As per Google Finance, "[i]ts customers include professional firms and companies of all sizes who purchase the courses for use by their employees, and individuals who purchase courses, programs or subscriptions on a retail basis." This is a small company that trades for just $10 million, but has $6 million of cash and no debt, and has generated $1-2 million of annual free cash over the last few years (excluding acquisitions).
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Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
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Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
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