The Justa and Lars Honors Bob Brinker Investment Club Thread Message Board

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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread

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Dec 12 4:00 PM EST

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To: marc ultra who wrote (6504)	10/15/2011 10:44:59 PM
From: Investor2	2 Recommendations Read Replies (2) of 10065

Chart of the Day Today's chart illustrates how the recent rise in earnings as well as the recent stock market action has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1900 into the mid-1990s, the PE ratio tended to peak in the low to mid-20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s), surged even higher during the dot-com bust (early 2000s), and spiked to extraordinary levels during the financial crisis (late 2000s). As a result of the recent spike in corporate earnings as well as relatively lower stock prices (e.g. the S&P 500 currently trades 11.7% off its April 2011 post-financial crisis highs) the PE ratio has dropped to a level that has not existed since 1990. chartoftheday.com

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