Hi umbro; Re the suitability of including P/Es only from the last 5 years as a guide to current market prices, rather than P/Es from the old, forgotten and ancient period that preceded this modern and enlightened time...
One of the things that eventually got drilled into me while trading is that one has to analyze over a past time period which is roughly proportional over the future time period that one intends to hold the stock. (Another is that future price moves in stocks tend to be proportional to the past price movements, at least as far as charting will work. In all this, of course, it must always be remembered that predictions are games of chance, and no charting is reliable on small numbers of charts. In fact, the advantage from charting is a lot smaller than that which a lot of people believe it to be.)
As an example of the proportionality in time principle, we know that MSFT has risen steadily over the last 20 years, but this is of zero value if one is trying to decide whether to buy or short it for a 5 minute scalp. There are some other principles that modify this somewhat, in particular, stocks drop more quickly than they rise, so ones predictions into the future should be shorter than the time period that you look into the past over.
Given this, I think that your analysis was perfect for someone intending on holding for a period of around a year or less. As far as the long term prices (value) of the stocks, I agree with Michael D. Burke.
-- Carl |
