bboo

wrong way...guys...

our hero has a problem here!



Edited 1 time(s). Last edit at Wednesday, December 15, 2010 at 09:10PM by coshair.

canadiananalyst

iteracom Wrote:
-------------------------------------------------------
> All of this is in the curriculum. why don't you
> look it up?
>
> %change S is the change in shares outstanding
>
> g can be derived either Nom GDP or Real GDP +
> Inflation
>
> change in PE is the price multiple



i did look it up. what i mean to ask is why change in PE has a positive relationship with E(r) ?
can u help explain that?

oneboy

^ that's a pretty obvious reason.. im surprised someone who passed L2 wouldn't understand it right away.

In any case, if the earnings don't change, but the market is willing to pay a higher multiple, your position becomes more valuable, which increases your return.

Zestt

positive return between p/e and expected returns. p/e increases - for same level of earnings - your p would go up. (which is an expectation of higher returns).

CP

aidebaobao

iteracom Wrote:
-------------------------------------------------------
> ^ that's a pretty obvious reason.. im surprised
> someone who passed L2 wouldn't understand it right
> away.
>
> In any case, if the earnings don't change, but the
> market is willing to pay a higher multiple, your
> position becomes more valuable, which increases
> your return.


i understand the difference between high and low PE. i was just not sure how a high PE is an indicator of greater expected returns. On the contrary, according to value buying, one of the most important criteria of stock selection is buying the stocks with low PE ratio. i think i was reading too much into the text.

on another note, u can try to be more civil when u answer someone's query .

lcw77

cpk123 Wrote:
-------------------------------------------------------
> positive return between p/e and expected returns.
> p/e increases - for same level of earnings - your
> p would go up. (which is an expectation of higher
> returns).


yeah thanks. i knew that of course. i was kind of confusing with another concept. never mind, got it figured now.

Colum

I was very civil. First to answer your question and your follow-up.
But if it's too much for you, then I'll just let california pizza kitchen answer from now on.