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CGM Focus Message Board

  • ryanruiz100 ryanruiz100 Sep 17, 2008 4:26 PM Flag

    PE Ratio of DJIA=14

    Current PE ratio is 14. Historic norm is 14. Unfortunately, I think it should be trading below historic norm. It will probably continue to drop. I will continue to hold but not invest new money. If you build up cash and dollar cost average over the next year, you will probably be a lot better off 5 years from now. Famous last words.

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    • let the election pass and take a look at where we stand in March or so.

      Actually I'm very excited about the prospects for planetary growth after we get through this "digestion" period which is necessary after the gorging in global growth/consumption.

      A new administration will really help. Bush will be back in Crawford playing video games and the adults will take over in the white house. It's about time.

    • Ryan - you mentioned earlier that the market should be trading around a 10 P/E with a 4% yield. If I remember correctly, you are spot on with Dow Theory which states market bottoms usually occur when market P/E are approx 10 and yields are 4-6%.

      • 1 Reply to jarltex
      • Here's where you can put everything in historical context:
        http://www.djindexes.com/mdsidx/index.cfm?event=showAvgStats

        http://valueline.com/pdf/valueline_2006.pdf
        Average historical PE is 14.5.
        Dividend yield compared to historic dividend yield may not be relevant: companies don't pay out as much of their earnings as they used to.

        If you believe this will only be contained to the financials, then the 1970's may not be a valid comparison, but the PE was 8 in late 1970's. Remember, this was originally limited to "subprime" and not documented or high quality home loans. Subprum was just the epicenter. I SAW this was going to be more severe than just subprime and would spread to other banks. Did I make any money on it? No. I did not expect FRE and FNM to get wiped out either. All I'm saying is the Dow should trade at a lower PE ratio when we are getting banks taken out on what seems like a daily, if not, weekly basis.

        That's all I have to say. Unfortunately, I am not a market timer. I know panic is when the bottom hits but I've been "panicking" for a while now, ever since this fund hit $55 I could see the trend was down, and that's because he didn't sell oil or steel. There is NOTHING going up right now, no place for your money except hard cash, not even bonds. So I'll just ride it out.

    • You make good sense. Dropped some stuff because I believe I can buy back 10-20% cheaper later and this fund is my high stakes position. Famous last words? Nah, we all fall on our own paper swords.

    • Where are you getting your figures from? Remember profit margins were at historic highs because of available leverage. As margins decline, so will earnings.

    • DOW going to 10,000

 
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