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'This Time It's Different" Is A PE Ratio Below 30 Cheap?
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Sorry Johnny you got me 😢
:-))
Valuation always matters, PE ratios do not however. Value investors have not caught up to accounting standards and can only value certain types of stocks. Basically only asset based companies. However, most of the big winners of the past 30-40 years have been asset light companies. R&D and SG&A get expensed, PPE and goodwill get capitalized. This makes the accountants happy, but makes P/E ratios worthless. Then there are financial companies, where mark-to-market adjustments make the Net Income absolutely worthless. Investing never changes – figure out what the earning power of a company is, discount it back at the appropriate rate, pay less. It is still Ben Graham, we just have to apply his principles to the companies that are here today – not the ones that were around 100 years ago.
you forgot one key thing that makes all these accounting things easy to solve: CASH!!!!
Always great information and perspective. Keep up the good work!
Sempre ben druze Sven, grazie per il servizio
grazie!
What do you think about IEMG and VBR ETFs? They both have very low PE ratios.
don’t know!
@Value Investing with Sven Carlin, Ph.D. VBR is USA small cap value ETF, seems to align with your thesis. Very low fees. Probably many of your subscribers would be interested.
For IEMG, you have said it’s okay in one of your previous videos.
Cheers from Slovenia Sven, I also watched your interview with Marja.
2:30 Old basic biblical lesson…what to do during the 7 years of fat cows / 7 years of skinny cows.
yep! but most people haven’t been in this game for 14 years…
We have to consider that most assets nowadays are intangible i.e r&d, marketing and software and these are not allowed to be capitalised by todays accounting standard. P/e 30 can be cheap if intangible investments are depressing current earnings and there are good reasons to believe that its operating margins can improve significantly in the future.
But the reason they are not allowed to be capitalized is just as valid now as back when there was less of this stuff. It is just that companies have now become more risky, and they should be judged as such. If you want to value a software company, well, if you are a software engineer, then maybe you have something to say about it.
But I agree. Many analysts, like Cathy Woods, talk about things they know nothing about.
@TheBooban Cathy wood just want your yearly 2% management fee.
@peez peez Sure, they all do. They all talk about AI, spaceships, microchips like they know something about this stuff. They don’t know it, and most of us don’t know it either. That’s why we need to stick with tangible stuff, like P/E.
intangibles are capitalized if valuable, those print cash!!!
@TheBooban I will make up any bullshit if I am paid enough. Can’t blame them. Always understand what you are buying and know why you buy them and don’t overpay for them – Grandpa Peter Lynch.
SPX…. CAPE of 31 🥶
I seem to remember reading somewhere that there used to be a much larger proportion of dividend yielding companies in the major indices, and that this has now significantly shifted to growth companies. Doesn’t that explain at least in part this higher average PE ratio?
Hei Sven! Great videos.
Boliden is now at 275 SEK, down from 470 in january. 10% dividend. When is it interesting to start looking at it?
Maybe you can make a video about stable Swedish industry companies?
Great video – however i would like to note that unexpected events happen more often than one would think. I read in “the psychology og money” that the only thing that is more dangererous than people saying that this time it’s different is the people who totally discredit the statement. However this doesnt mean that on average its fine to buy stocks in the high 20’s – thats objectively very expensive, but in individual cases, think amazon, with a PE of 80, it can sometimes be a true statement
Sven, do you think that the inflation in PE can be partly due to cheaper trading costs opening up the market to lower income investors
I don’t think people understand P/E. Maybe if they looked at E/P and compared the yields with other investments, they could avoid the risk of buying companies with P/E ratios of 25 and higher.
You‘re the only YouTuber where I have the notifications on 🔥
It’s bitsy rates… Ha ha.
👏👏👏 A Sven a day, keeps the irrationality away. Thanks for the clarity of the explanation
Hi Sven, just curious as to your personal thoughts on Seth Klarmen and his recent opinions on coinbase.
Are you going to do an analysis of legal and general?
This is all an attempt to time the market. Statistically you’ll underperform this way. Just DCA into a market index fund over the long haul and you’ll get the benefits of holding equities. Otherwise, you’re playing a game and you’ll likely blow your portfolio up. PE ratio is often garbage for various reasons. During earnings recessions, PEs often get very high as the market starts to go up while the earnings recession is still going on, and then a bull markets grows into it. Using that single metric as a way to time the market is going to lead to confusion and underperformance.
great video. i dont see rates dropping… with prices and demand already so high, lowering the fed rates would only poof them up more