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Strategies & Market Trends : Roger's 1998 Short Picks
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To: CatLady who wrote (4398)3/7/1998 10:32:00 PM
From: Pancho Villa  Read Replies (2) of 18691
 
CatLady, unlike the Dow, the S&P indices, 500, 100, etc. are
capitalization weighted and so are the average earnings included in
the calculated PE. There are many sources for the indeces PE
You can find then in for example barron's market lab here is a link:

interactive.wsj.com

and the values for some indices: The columns are:
LastWeek, PreviousWeek, Year AgoWeek,

DJ Ind Avg 8569.39 8545.72 7000.89
P/E Ratio 22.1 22.0 19.8
Earns Yield, % 4.52 4.53 5.05
Earns $ 387.42 387.42 353.34
Divs Yield % 1.63 1.63 1.93
Divs $ 139.77 139.65 135.35
Mkt to Book % 606.02 604.35 523.50
Book Value $ 1414.04 1414.04 1337.33

S&P 500 Index 1055.69 1049.34 804.97
P/E Ratio 26.47 26.07 20.77
Earns Yield, % 3.78 3.84 4.82
Earns $ R-39.89 40.25 38.76
Divs Yield % 1.50 1.52 1.88
Divs $ 15.84 15.95 15.13
Mkt to Book % 580.56 577.07 461.57
Book Value $ 181.84 181.84 174.40

As you can see the S&P 500 PE is at 26.5 Wow! and the yield of 1.5%, book value of 6x are probably at historical low and high levels
respectively.

I am glad someone looked at the PV of a perpetuity growing at
compounded rate g for ever. We know reality does not work like this
but the present value of cash flows far into the future have a lesser
weight so the appx is not that bad.

The model P/E=1/(r-g) explains why high growth stocks command a
higher PE (higher r) and the greater the risk (higher r as investors
demand higher returns) the lower the P/E ratio for a given g.

Pancho

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