Re: [CANSLIM] Cheap?

From: Spencer48@aol.com
Subject: Re: [CANSLIM] Cheap?
Date: Wed, 17 Jul 2002 14:08:38 EDT

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zillagirl:

     Interesting observation.  I see PE's as being historically 
comparable-despite fewer buyers in the past than now-because:  PE's are 
ratios.  The price will go up as demand (buying) increases.  However, 
earnings (the denominator) will also reflect history's marching-on.  Thus, 
despite prices increasing, earnings will also increase (whether due to 
inflation or productivity increases which lead to real profit growth).  Now 
if they both increase equivalently-compared to what they were in the 
past-PE's should stay the same.  

     I believe (I have no evidence of this, nor would I know how to get it) 
earnings have increased equivalently with price.  The reason I believe this 
is that stock prices are based on earnings, and based on realistic and 
reputable projections of earnings, investors will buy the stock.  This will 
cause the price of the stock to rise-but only because investors now see that 
earnings will rise (which, if fact, they have).  

     The reason why the PE's are comparable (from one era to another) is 
because investors psychology does not change-they will always buy, so long as 
they believe the earnings merit that the stock should be bought.  

jans (Assuming my answer is-in part-correct, does this mean that "my mind is 
smarter" than zillagirls?  My vote is "No"-for I wouldn't even [and history 
proves this] have thought up the question.)



In a message dated 7/16/2002 11:16:25 PM Eastern Daylight Time, "zillagirl" 
<zillagirl@email.msn.com> writes: 
 
 I have a question for minds that are smarter then my own.  When we look at
 price to earnings, don't we have to consider the number of people investing
 in the market today over what it was in the past.  I've read
 historically -that in the past- 10 to 15% of households were involved in the
 stock market.  Now I've seen figures of 50% or more.     If 35% more
 American households started putting money in the same 10,000 or so stocks
 that existed before-it seems like that would drive up the price, even if the
 business was no more profitable or productive then before.(supply and
 demand). Possible even keeping the price up if these households kept
 investing(higher P/E ratios)      Hence maybe it would be unrealistic to
 think that the correct P/E for this point in time should be exactly in line
 with the correct P/Es of the past.  Unless of course that extra 35% of the
 people got out of the market again.       Kind of like saying-the
 babyboomers are here and our mind tells us that we need many more retirement
 homes- but historically, over the past 75 years, 2 retirement homes per city
 have been the norm so that is the figure we will stick with.   If this
 theory sounds reasonable-it would certainly take some of the fright out of
 those charts. >>

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