Max, I think the investing public is catching on to what Abbey, Joe, and the rest of the gang refuse to admit (your words)
Valuations matter, is how I think that phrase should end.
Warren Buffet says that if you take into account stock options, many company's earnings would be slashed by 20%. Make those special charges part of earnings instead of separate, non-recurring charges, and you get another 20%.
Maybe that has something to do with the drop. Valuations matter, and even if the P/E's seem reasonable, they are not when you look at the entire picture.
If the S&P is at a P/E of 24 (just a guess) that might indicate that it is more like 40 if Buffet's accounting method applied to it. I'm not saying this is how the public is looking at things, but that's how Buffet may be.
I think this method is more applicable to the Nasdaq market.
With the NDX at a P/E of around 30, that might indicate it is really about 50 right now.
By the way, I agree with Zeev in that the way to value the NDX P/E is to take the top 10 companies that make up the majority of the capitalization. Companies like CMGI are not going to matter in the near future, so why value an index by factoring them in. |
