Book Summaries
Chapter 3: A Century of Stock Market History (The Intelligent Investor)
It is important to learn about the history of the stock market, so that you understand how stock prices are related to earnings, cash [flow](https://www.amazon.
It is important to learn about the history of the stock market, so that you understand how stock prices are related to earnings, cash flow, and dividends.
The price of a stock changes, according to real growth (company’s earnings and dividends), inflationary growth, and the amount of speculation (up or down).
The PE 10 ratio, developed by Nobel Laurate Shiller, compares current S&P 500 index prices to an inflation adjusted average of profits over the past 10 years.
The P/E ratio helps investors determine the market value of a stock as compared to the company’s earnings. In short, the P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings. A high P/E could mean that a stock’s price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to earnings.Source
While the P/E ratio could be useful, it is a metric that varies widely between different sectors. It should only be used to compare companies within the same sector, and even then it should be used with caution, since the source of information about earnings come from the companies themselves, and could be inaccurate.
YARPP List
Related posts:
- Chapter 2: The Investor and Inflation (The Intelligent Investor)
- Chapter 1: Investment Versus Speculation (The Intelligent Investor)
- The Stock Market (Against the Gods)
- Chapter 8: In the long view of history, moral codes are universal and necessary (The Lessons of History)
Keep Reading
Related Articles
Book Summaries
What is The Swimmer’s Body Illusion?
In [Body By Science ](https://unearnedwisdom.com/body-by-science-summary-9-10/), we learn about a common misunderstanding. You look around and you see bodybuilders and joggers. You feel that the body builders are too broad, and look rather stupid, but then the joggers look scrawny and miserable.
Book Summaries
Quiet Summary (7/10)
#### Introverts Many introverts try to deny their true nature, writes Cain in her book Quiet. They won’t be noticed as introverts in their workspaces, schools, or neighborhoods. They will lie to themselves about who they are – until a major life event hits them.
Book Summaries
The Ecstasy of Communication
Jean Baudrillard’s book, “[The Ecstasy of Communication](https://amzn.to/44a7TL0),” explores the profound ways modern technology and media have reshaped human experience and society.
Book Summaries
Part 2: Send Mixed Signals (The Art of Seduction)
We find contradictions fascinating. Send mixed signals to others, make it hard for them to figure you out. Seduce someone by filling their mind with your image. But to deepen your interest, to keep their attention on you, hint at a complexity that is hard to grasp.