After getting her certification as a scuba diver, I took my daughter to Cozumel for some breath-taking reef dives. Although I'm not a person who normally reads at the beach, I packed a very small book on investing. While I don't recall the title, it was one of those "the only thing you need to know about investing" type of books.
Today, the S&P has a 12.7 PE ratio on next year's projected earnings. This is very low, historically, and suggests the market is a strong BUY.
It said if the PE ratio for the market is 10 or below, it is a raging BUY. If the ratio is 15 or more, it is a raging SELL. For example, if the average earnings per share is $10 and the stock price is $110 per share, the PE ratio is 11. Add up all the stocks in the S&P 500 to get the market's overall PE ratio. That's all you need to know about investing, according to that book anyway!
Since then, most analysts think the range is now between 15 and 20. This is because stocks compete for funding against other assets, such as bonds. When interest rates are so low, stocks look more attractive and go up. Thus, the range has gone up.
Today, the S&P has a 12.7 PE ratio on next year's projected earnings. This is very low, historically, and suggests the market is a strong BUY.
Now, if we could just get Europe out of the headlines, maybe we could all go back to Cozumel and read investment books.
