Thu 9 Oct 2008
I know PE Ratios are old-school, investor 101, hardly an indicator of much of anything, right? Well, I couldn’t help but see that today the S&P 500 had a PE Ratio of 11.57…. below the PE Ratio it had back at the end of 1988. For reference, PE Ratio of the S&P got as high as 32 (or 46 by some measures) and change in 2001 near the height of that bubblicious time, and the generally accepted PE historical average is 15.
For long-term investment value, a PE this low represents a tasty bargain. Rather than trying to time the market bottom, if you are a long-term investor with 20+ year time horizon, the S&P index is looking pretty good!
October 9th, 2008 at 5:11 pm
Are those P/E ratios based on trailing earnings, or future earnings projections? Different websites report different numbers, and the E may be up for debate…
Regardless, I agree that prices are starting to make the broad indexes look more attractive. Those of us that are young will benefit from dollar cost averaging in bear markets like this.
October 9th, 2008 at 5:21 pm
I should mention that 880 represents the highest density price of the S&P back during the 2003 consolidation near the lows. Today’s market had a low of 909.19.
Also, for options lovers, I’d like to point people to this classic article (though probably forgotten) about reverse calendar spreads as a way to play capitulation days (not that we’ve really had a true one yet). It’s an interesting way to avoid bottom picking problems with straight buying.
http://www.investopedia.com/articles/optioninvestor/02/081902.asp