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
A Brief Summary of The Principles of Psychology (7/10)
*The Principles of Psychology* is a book written by William James and published in 1890. The book covers a wide range of topics concerning the human mind and behavior. The first main idea is that the human mind is very complex.
Book Summaries
Meditations on Moloch And Mimesis
In the vast expanse of human history, civilizations have been plagued by coordination problems that have given rise to destructive forces. These forces, often characterized by a lack of cooperation and harmony, have the potential to undermine the very fabric of societies.
Book Summaries
The Storm Before the Calm Summary (8/10)
## Summary The American president has little power compared with European prime ministers. A president faces two parliaments, countless federal judges, and fifty sovereign states. He can rarely achieve anything, but he focuses the mind of the nation.
Book Summaries
Make It Stick – Quick Summary
1-Sentence Description ofMake It Stickby Peter C. Brown, Henry L. Roediger III, Mark A. McDaniel --- Concrete techniques for becoming a more productive learner. --- --- 1. **Retrieving** – Practice retrieving new and old learning. Quiz yourself. 2.