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PE on AS REPORTED earnings on 6/27 for R2000 was 84. But PE on forecast OPERATING earnings for the next twelve months was around 19. Hmm. Sources are Standard and Poors and Birinyi respectively, though I don't respect either of those two shops.
As MJG has noted, definitions make all the difference in the world.
@MarkM: basically trailing twelve months' P/E versus forward P/E based on earnings estimates. When I posted the forward P/E, it was referring to the latter. Most unfortunately, M* seems to just report the forward P/E for individual mutual funds. I wish they would report the trailing twelve months P/E also.
Certainly the forward P/E depends entirely on how accurate those 12 month forward earnings estimates are, and they could end up being way off. The TTM P/E is in the books, based on the actual reported earnings, so I definitely want to see both.
I'm in agreement with you with respect to the high valuations of the small cap space. But I'm not sure that applies to small cap value. It certainly applies to small cap as a whole, and especially small cap growth.
As I mentioned before, the Dow 30 valuation seems quite modest. And certain investments, like GVAL and others, were designed to invest in low P/E stocks.
@MJG: appreciate your post. Yes, I try to look at the P/E given and make sure I know if it is a trailing twelve months P/E, a forward P/E [using the projected/estimated earnings going forward], what company came up with the earnings estimates, and all the details. Often those details are not given sufficiently. As I just replied to someone else, I find it unfortunate that M* just seems to report the forward P/E on the portfolios of individual mutual funds, as well as exchange traded funds and even index funds. I wish it would become standard to report both TTM P/E and forward P/E, and give relevant details such as you bring up.
I'm sure forward P/E ratios given in 2007 turned out to be way, way off base, since earnings must have collapsed during the great recession. Then the actual P/E goes thru the roof, since the denominator shrinks.....then the P shrinks and after a while we are in a bear market! So I agree with you wrt distrusting earnings forecasts, or any other forecast for that matter.
I think Buffett said something to the effect of, 'market forecasters make fortune tellers look good.'
You mentioned "Nobel laureate Robert Shiller recently introduced the 10-year average of real (inflation-adjusted) earnings as the Earnings denominator". I tried to look up when he introduced that, but so far haven't found it. I thought it was quite some time ago, at least people talk about it as if was a long time ago. Certainly has become a very hot topic. I think the current Shiller P/E is 26. Shiller's very good buddy Jeremy Siegel has a number of criticisms about using the Shiller P/E, or CAPE 10, to judge valuation. Especially now, since Siegel doesn't like that it includes the great recession.
I happen to like Robert Shiller a lot. He had a nice interview with Consuelo Mack on WealthTrack this year.
You can google it. It's on You Tube. I just posted it, but, "surprise", the URL from You Tube ended up posting the video graphic itself embedded [like when Ted posts a video with an arrow to view it!], and all I wanted to do is post the URL. The WealthTrack show was 2/21/2014
The problem with Siegel is his promotion of and financial tie to WisdomTree. He abandoned unbiased research in my opinion, and is unqualifiedly bullish no matter what. He sold both his name and reputation.
Yes, I'm also not thrilled that he seems to be a Perma Bull. But I'm wondering if he was also a permabull even prior to his Wisdom Tree affiliation. And agreed, I do not consider it appropriate for a university professor to have this affiliation to Wisdom Tree, or to anyone else. You're not supposed to have conflicts of interest when you are in academia. How can you do unbiased research? Perhaps his ties to Wisdom Tree came only after his second book, where he seems to have 'discovered' the importance of dividends in a new way?
Comments
As MJG has noted, definitions make all the difference in the world.
Good Luck and Best Wishes
Most unfortunately, M* seems to just report the forward P/E for individual mutual funds. I wish they would report the trailing twelve months P/E also.
Certainly the forward P/E depends entirely on how accurate those 12 month forward earnings estimates are, and they could end up being way off. The TTM P/E is in the books, based on the actual reported earnings, so I definitely want to see both.
I'm in agreement with you with respect to the high valuations of the small cap space. But I'm not sure that applies to small cap value. It certainly applies to small cap as a whole, and especially small cap growth.
As I mentioned before, the Dow 30 valuation seems quite modest. And certain investments, like GVAL and others, were designed to invest in low P/E stocks.
I'm sure forward P/E ratios given in 2007 turned out to be way, way off base, since earnings must have collapsed during the great recession. Then the actual P/E goes thru the roof, since the denominator shrinks.....then the P shrinks and after a while we are in a bear market! So I agree with you wrt distrusting earnings forecasts, or any other forecast for that matter.
I think Buffett said something to the effect of, 'market forecasters make fortune tellers look good.'
You mentioned "Nobel laureate Robert Shiller recently introduced the 10-year average of real (inflation-adjusted) earnings as the Earnings denominator". I tried to look up when he introduced that, but so far haven't found it. I thought it was quite some time ago, at least people talk about it as if was a long time ago. Certainly has become a very hot topic. I think the current Shiller P/E is 26. Shiller's very good buddy Jeremy Siegel has a number of criticisms about using the Shiller P/E, or CAPE 10, to judge valuation. Especially now, since Siegel doesn't like that it includes the great recession.
I happen to like Robert Shiller a lot. He had a nice interview with Consuelo Mack on WealthTrack this year.
You can google it. It's on You Tube. I just posted it, but, "surprise", the URL from You Tube ended up posting the video graphic itself embedded [like when Ted posts a video with an arrow to view it!], and all I wanted to do is post the URL. The WealthTrack show was 2/21/2014
Cheers