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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (14873)	7/19/2002 2:07:36 AM
From: Paul Senior	Read Replies (1) \| Respond to of 79172

re: "The market has temporarily suspended most links between business performance and share prices." Maybe so. Maybe not. The metric I'd use as a link is price (share price) to earnings (business performance). What seems to be happening is a general lowering of p/e 's across the board. Certainly I see this with high p/e stocks such as pharmaceuticals, all of which (that I'm aware of) have had their p/e's cut. While it might be argued that this is just one sector decline, I'm not aware of any sector that hasn't had a p/e contraction -- chemicals, industrials, tech... even REITs to some extent have been affected. People just don't seem as willing to pay as much for earnings, or maybe it's earnings growth. What's bothering me is that I could see stock prices coming down in sectors with lowered earnings (p/e's rising), but I just did not expect that p/e's overall would be dropping when interest rates are low. I remember those low under 10 p/e's on Coke, Intel, etc. decades ago, but that was when bond yields were much, much higher than now and provided an alternative to stocks. I recently read though where somebody did a study and found that p/e's can be independent of interest or bond rates. Which might mean that a return to the low p/e's of decades ago is a possibility in today's low interest rate environment. That's what seems to be happening, and I'm not liking it. Paul S.