Such as you only buy when P/E ratio is less than a certain value.
2006-10-15 02:07:59 · 4 answers · asked by Tom S 3 in Business & Finance ➔ Investing
It is not so simple as that, but there are those how tend to follow rules of a similar nature. Warren Buffet being one. They are called value investors. In general studies have shown that low pe stocks tend to outperform high pe stocks. There are several obvious reasons for this. 1. one is that low pe stocks tend to be more subject to pleasant surprises while high pe stocks tend to be more subject to unpleasant surprises. 2. one is obviously getting more value per dollar invested with low pe stocks. 3. investors tend to overvalue success and under value un-success. Did not know how to put that any better. Hope you get the drift of what I mean.
I do have a rule that I use. If the pe is over 20, I have to have a very compelling reason to want to invest in it. Very compelling. If the pe is around 10 and the stock has a decent track record and pays a decent dividend, it gets my attention. Oil stocks!!!
2006-10-15 02:34:46 · answer #1 · answered by Anonymous · 0⤊ 0⤋
You can only wish it were that easy; dream on.
This would be akin to saying "If a stock declines in price by half, then it is a better value." Actually, some people think if price declines at all, it has better value; discount, a Sale.
If the biggest oil company in the world was a good value at $45, Enron, then it must be a Buy at $20, right? How about $10. Wall Street was recommending this stock all the way down to $5. And the SEC approved all of their quarterly reports. WorldCom was no different. And all of the dot-coms in 2000 was the same story. People bought these stocks all the way down to almost nothing.
I have a rule about buying based on the p/e ratio -- don't do it.
2006-10-15 08:36:50 · answer #2 · answered by dredude52 6 · 0⤊ 0⤋
High P/E stocks can go up to the sky, and low P/E stocks can stay low for quite a while.
Let's say that in opposed to traditional thinking, prices are not derived by a rational "economic" thinking - rather the emotions of people (greed & fear) are the factors that cause prices to move up/down.
If interested, I'd advise you to study some Technical Analysis. A good place to start is John Murphy's classic.
2006-10-15 04:53:11 · answer #3 · answered by Anonymous · 0⤊ 1⤋
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2017-03-01 00:37:48 · answer #4 · answered by Hattie 3 · 0⤊ 0⤋