Classic Investing Theory

Remembering a Classic Investing Theory

Excerpt:

Right now, the stocks in the Standard & Poor’s 500-stock index have an average P/E ratio of about 16.5, which by historical standards is quite normal. Since World War II, the average P/E ratio has been 16.1. During the bubbles of the 1920s and the 1990s, on the other hand, the ratio shot above 40. The core of Wall Street’s reassuring message, then, is that even if the mortgage mess leads to a full-blown credit squeeze, the damage will not last long because stocks don’t have far to fall.

Comment: The worst thing an investor can do it look at the stock market every day! Buy value ... invest for the long haul! When the stock market goes up 10% ... just remember it is only "on paper". When it goes down 10% ... remember "it is only on paper". As for Security Analysis, I had not heard of it before today. I'll probably pick it up!

Stock quote for Citicorp.

Tip: Use online financial tools to look for the P/E ration! If the P/E is "N/A" (eg , Ford), the company is not making a profit.