Using Forward Earnings

We have noted the poor fit — both descriptive and prescriptive — of using backward-looking earnings as a valuation measure.  Let’s consider a look at forward earnings.  The chart here shows Thomson First Call forward earnings versus the yield on the ten-year Treasury note.  It is a simple method, testing the idea that investors look […]

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P/E ratios: Forward or Backward?

The stock market is a market of stocks.  Think about how everyone chooses a stock investment. You can look at the history of earnings — and you should.  Past earnings show how the company has performed, the numbers are set, and our information is as good as possible. Good analysts do not stop there, since […]

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P/E vs S&P 500 (50 Years)

Take a look at this great chart of P/E versus the S&P 500.  It does a wonderful job of setting up the valuation question.  You can see what is wrong with it, even without looking for a better model.  The trailing P/E ratio method is poor both descriptively and prescriptivey — the two reasons we […]

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Sneaky Street Conspiracy?

Tucked inside this recent post joining the debate on who is the bigger contrarian, is an assertion that Wall Street is tricking us into thinking the market is attractive when it is really almost 30% overvalued.  Barry Ritholtz invokes a big name, Cliff Asness,  and states that he has researched the forward earnings comparison.  This […]

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