The Truth About P/E Ratios

Mar 28, 2017

Noted economist and fund manager John Hussman warns we’ve recently arrived at “the most broadly overvalued moment in market history.” Nobel prize-winner Robert Shiller warns “the market is way overpriced.”

Yet plenty of other famous investors disagree. Warren Buffett recently went on record saying “We are not in bubble territory or anything of the sort. Measured against interest rates, stocks are actually on the cheap side.”

Legendary investor Benjamin Graham famously said, “In the short run, the market is a voting maching, but in the long run it is a weighing machine.” His point was that investors “vote” with their dollars for various stocks based on many factors, including popularity. This greatly influences prices in the near term. But ultimately, the stock market rewards investors who appropriately size up the true long-term value of specific companies or markets as a whole and act accordingly. But as the earlier quotes make plain, that’s easier said than done.

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Written by

Mark Biller

Mark Biller

Mark Biller is Sound Mind Investing's Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark also serves as Senior Portfolio Manager to SMI Advisory Service’s Private Client managed-account program and the SMI Funds.

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