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Ratios – Hedge Funds’ Meat and Poison
To close out this week’s focus on ratios, let’s look at hedge funds, the most sophisticated users. Their offsetting, push-me/pull-me risk strategies often win in normal times. However, occasionally the unexpected happens… »
Beyond P/Es – Avoid Over-reliance on Ratios
Ratios provide important information everywhere in our lives, helping us to understand and compare. However, they carry dangers of building false expectations and giving incorrect investment guidance. Here’s where the problem lies: »
The Defect in Price/Earnings Ratios – Part 2
Yesterday we saw the challenge in using price/earnings ratios (P/Es) to analyze individual stocks. Today, we turn to the added difficulties in combining multiple company P/Es into a usable average P/E for portfolios and indexes… »
The Defect in Price/Earnings Ratios – Part 1
The price/earnings ratio (P/E) is a popular stock valuation measure. However, it has a flaw, which I explain below. Tomorrow, in Part 2, we will examine how the flaw affects portfolio and stock market analysis. »
Missing the Trees for the Forest – Look at Individual Stocks
I just read that stocks are overvalued. The proof? The forward price/earnings ratio (P/E) for the Standard & Poor’s 500 Stock Index (S&P 500), now about 17 times, is at the high end of its historical range. At this point in the economic and financial cycle,... »
John Tobey on Seeking Alpha
