P/E ratio is declining and becoming irrelevant

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    Posted: 30 August 2010 01:31 PM

    As investors fixate on the global forces whipsawing the markets, one fundamental measure of stock-market value, the price/earnings ratio, is shrinking in size and importance. More.

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    Posted: 30 August 2010 05:21 PM #1

    Mace - 30 August 2010 04:31 PM

    As investors fixate on the global forces whipsawing the markets, one fundamental measure of stock-market value, the price/earnings ratio, is shrinking in size and importance. More.

    Size and importance are two completely different things. Size typically reflects sentiment. Importance reflects correlation. To say P/E size is dropping is saying that sentiment is poor which may or may not be justified. To say that there is a drop of importance is saying that there is an over-reliance on ETFs. I don’t know if the two are connected, but they might be.  That sets up a potential ETF bubble as correlation fatigue settles in.

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    Posted: 30 August 2010 05:44 PM #2

    asymco - 30 August 2010 08:21 PM

    ... That sets up a potential ETF bubble as correlation fatigue settles in.

    I’ve this passing thought too.

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