P&S and STO Death Blow's Message Board

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Strategies & Market Trends : P&S and STO Death Blow's

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To: exp who wrote (292)	5/16/2002 10:51:27 PM
From: Math Junkie	Read Replies (1) of 30712

The S&P's accounting change should not cause SPX fair value to go to 770. The only thing being changed is the yardstick. The actual amount of money being made by the companies is not changing. One needs to realize that, if the stated P/E of the S&P 500 is going up by 30% through a change in accounting standards, then one's estimate of what is a "proper" P/E must also be increased by 30%. Otherwise you're comparing new-standard earnings to old-standard earnings-expectations, i.e., apples-to-oranges. There certainly could be downside due to some investors not understanding the above, but there's no way to calculate that. Incidentally, it appears from the following link that fair value is determined by market price, interest rates, and dividends. It appears that the P/E ratio doesn't even enter into it. programtrading.com

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