tag:blogger.com,1999:blog-7296410208500992185.post160156758869219688..comments2023-10-30T05:03:34.290-04:00Comments on Vinny Catalano: An Ugly Picture is Worth a Thousand WordsVinny Catalano, CFAhttp://www.blogger.com/profile/13958861468295795061noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7296410208500992185.post-69247042403742087162010-06-03T09:16:09.309-04:002010-06-03T09:16:09.309-04:00Aaron,
Far from a "stupid" question.
...Aaron, <br /><br />Far from a "stupid" question.<br /><br />Your points are accurate. The one I am making is as follows:<br /><br />15 (which is the average P/E for the S&P 500 over the past several decades) times $80 (approximate mid point of current 12 months forward look for operating earnings for the S&P 500) = 1200.<br /><br />If one were to discount that 12 month ahead number by the average return for large stocks over the past several decades (which is 12%), you end with a current S&P 500 fair value of 1071. <br /><br />Accordingly, an above average P/E would put the current market at much higher levels. For example, 17 times $80 = 1360, which = 1214 discounted current fair value.<br /><br />Hope this helps.<br /><br />VinnyVinny Catalano, CFAhttps://www.blogger.com/profile/13958861468295795061noreply@blogger.comtag:blogger.com,1999:blog-7296410208500992185.post-12015895414359389162010-06-02T18:52:29.562-04:002010-06-02T18:52:29.562-04:00Forgive the stupid question: why should "...a...Forgive the stupid question: why should "...above average P/E ratios imply a much higher level for stocks"?<br /><br />I assume you meant high P/E now implies higher future stock prices in the future.<br /><br />Isn't high P/E ratios an indicator that reversion to the mean P/E is more likely in the future, probably through lower Price?Unknownhttps://www.blogger.com/profile/11228061594709805379noreply@blogger.com