beliavsky[at]aol.com wrote:
- quote -

Check out the articles by Carl Swenlin in Top Addvisor's Corner on
http://www.decisionpoint.com as he covers three P/E measures. E.g.
http://www.decisionpoint.com/TAC/SWENLIN.html.

Personally, I see cash like this: the governments/central banks are
diluting its value constantly so staying in cash is stupid (but I'm
there myself for lack of anything smarter!). E.g. take out an ARM and
once you consider inflation you may be living for free! Central banks
can - and do - always print more currency [and make loans unbacked by
assets] so cash is losing value constantly. Holding cash is alot like
investing by buying a car. Company valuations may account for the
expected loss of cash value; that is, investing in cash versus
investing in something like a company that should not depreciate with
inflation (cash dilution). If one stays in cash one has a 99.9% chance
of losing value every year and every day.

As to P/E, I suspect this is an advertising number. I mean of course
the executives and accountants of company X know how it is doing so P/E
is simply a historical record of past performance. Is insider trading
more predictive?

Philosophically, maybe intentional inflation is good as it forces us to
put our money to use.


======================================= MODERATOR'S COMMENT:
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Ron Peterson wrote:
- quote -

People who are knowledgable about corporate finance and have much time
to spend on investments may be more successful as stock pickers than at
"tactical asset allocation", but stockpicking is a LOT more work, and
bad stockpickers can lose heavily.

Earnings data for an individual company has more noise than for the
overall market, so I think one can state that the S&P 500 is over- or
undervalued relative to its earnings (and interest rates) with more
confidence than for an individual stock. To give two examples,
WorldCom's earnings were fictional, and GM recently looked very cheap
on a P/E basis --
until the earnings estimates tanked.

NewsGuy wrote:
- quote -

Not exactly. I think the ratio is of the price of the S&P 500 to the
average 10-year real (inflation-adjusted) earnings of the S&P. When
real earnings have been rising, the P/E computed this way will be
higher than the usual P/E computed using 1 year of trailing or forward
earnings. Shiller deliberately smooths the earnings data with a 10-year
average to avoid problems such as temporarily low corporate earnings
leading to an artificially high P/E in a recession. I think he has
found the P/E with a smoothed "E" to be a better predictor of future
stock market returns than the P/E with raw "E". Shiller's book
"Irrational Exuberance" has details.

Burton Malkiel has recently studied a market timing strategies based on
the Fed Model and Shiller's P/E ratio. I read the article, and given
the data Malkiel presents, I came to the conclusion (different from
Malkiel's)that market timing DID add value over the 1970-2003 period,
since market timing reduced risk more than it reduced returns.

Models of Stock Market Predictability
BURTON G. MALKIEL
Princeton University - Bendheim Center for Finance; National Bureau of
Economic Research (NBER)
Journal of Financial Research, Forthcoming
Abstract:
I briefly review the success of past studies purporting to explain
equity valuations and predict future equity returns. The
Campbell-Shiller mean reversion models are contrasted with an expanded
version of the so-called "Federal Reserve" model. At least over the
1970-2003 period, "Federal Reserve-type" models do somewhat better at
predicting long-horizon returns than a mean reversion model based on
dividend yields and price-earnings multiples. However, timing
investment strategies based on any of these prediction models do no
better than a buy-and-hold strategy. While some predictability of
returns exists, there is no evidence of any systematic inefficiency
that would enable investors to earn excess returns.
Keywords: Equity valuation and stock market predictability
JEL Classifications: G12, G14

NewsGuy wrote:
- quote -

I consider myself to be a value investor, but I have doubts that the
market can be timed. Why not be a stock picker?

- quote -

Reuters.com will give the S&P 500 ratios when looking at the ratios for
a stock. It currently gives the p/e ratio as 21.43.

--
Ron

On Mon, 28 Mar 2005 04:03:34 CST, "NewsGuy" <john-os[at]excite.comwrote:


- quote -

Very interesting data. Do you know how often he updates it?


-HW "Skip" Weldon
Columbia, SC

I have read 'Irational Exuberence' by Robert Shiller a few years ago. He
(and Warren Buffet) have influenced my personal decision
making regarding stocks. I consider myself to be both 'a long term' &
'value investor', and *prefer *to *remain *mainly *in *cash
*during *periods *of *high *valuations. My question is in regards to putting
current market valuations in a historical context.

According to his site located at
http://aida.econ.yale.edu/~shiller/data/ie_data.htm
Shiller claims that stocks for the S&P (500?) have an average pe ratio of
26.4 as of June, 26, 2004.
I've crunched his numbers in a spread sheet and found:
the *very long term historical average pe ratio to be 15.88491 (15.9) from
Jan.1900-June 2004.

My questions are:
1) Does anyone know what Shiller's p.e. is based on, ie GAAP, as reported,
etc.?, I would like to better understand current valuations in a historical
context.. 2) And how would I could I estimate todays current pe ratio as of
3-28-05 (Shiller's data ends at June, 2004).

Regards,
John