P/E DOES NOT STAND FOR PRETTY/INTERESING...

But alas, the P/E Ratio is a basic tool used in the world of fundamental stock analysis, so knowing what it is, is pretty/essential.

From ABOUT.COM: STOCKS

If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E). The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)

The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.

You calculate the P/E by taking the share price and dividing it by the company’s EPS    

P/E = Stock Price / EPS  


For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5).

What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.

What is the “right” P/E? There is no correct answer to this question, because part of the answer depends on your willingness to pay for earnings. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the “right” P/E is for that particular stock in your decision-making process. Another investor may not see the same value and think your “right” P/E is all wrong.

For the more visual learners such as myself, below is a hot european guy giving a good explanation of P/E and it's relevance in considering a stock.



Hot european guy (H/E/G) uses the future earnings method to determine the P/E, where the most common (or so I have read) method is to use the "trailing" or last 12 months earnings instead. 

In this video the guy with the great hair is discussing P/E and it's relation to actual earnings.

Increasing P/E Ratios - How Much is Too Much? - The most amazing bloopers are here

And in this video, the guy who says uummm a lot presents some interesting facts and perspective about the current S&P P/E.  He says CAUTION AHEAD!




P.S. I originally put this post together for the blog I created for the women's investment club I belong to. We call ourselves the M.O.N.I. club.

FINANCIAL WEAPONS OF MASS DESTRUCTION

I posted this video on my other blog, click here.

That's Billion with a B...

From the New York Times:

Thousands of top traders and bankers on Wall Street were awarded huge bonuses and pay packages last year, even as their employers were battered by the financial crises.

All told, the bonus pools at the nine banks that received bailout money was $32.6 billion, while those banks lost $81 billion.

Some compensation experts questioned whether the bonuses should have been paid at all while the banks were receiving government aid.

Ya think? I feel like I stumbled into Alice in Wonderland where a fat caterpillar is smoking a lot of hookah, speaking a bunch of gobbledygook and advising me to take mushrooms so I might understand it all. Is it opposite day?

I'M MAD AS HELL...

I am getting scammed by the government. Specifically the Parking Violations Bureau of the City of Los Angeles. I went away for Memorial Day weekend, and apparently an officer who was having a particularly low competence day decided to up their average and write me a ticket for missing a license plate. I was parked in Parking Lot C at LAX. There was no ticket on my windsheild, I heard about it a month later from a letter letting me know that I better pay it, lest I start accruing additional fines. Now, this is outrageous because BOTH MY PLATES WERE ON, HAVE BEEN ON, AND ARE STILL ON! The tags are even up to date (which I am proud to say that for the first time in many years, I did not let them expire and get a ticket before I updated them). When I called to complain the gal who spoke to me said that the ticket wasn't even valid because it didn't indicate if the front or the back plate was missing, and that it would probably go away. I felt pretty good about that, I wasn't going to have to waste any more of MY TIME on this foolishness. Not so. A month goes by and Thursday I get another letter saying that the ticket is valid, my front plate is missing, and if I want to avoid paying the $25 fine (plus fees if it is not paid within 21 days), I have the option of submitting the following items:

1. A copy of the letter with the proof of correction verified by signature from a law enforcement agency or a dated photograph of the front of the vehicle with the license plate properly attached to the vehicle.

2. $10.00 reduced fine amount per citation plus any late penalty amounts.

This is B.S. I called the office again, got the typical rude girl who wouldn't let me get a word in edgewise, and after she had worked me into a frenzy of anger and bewilderment, offered to transfer me to the office were I could take MY TIME to make my case at a hearing over the matter, after paying the fines. Oh, and by "offering" to transfer me she mentioned that it would cost $2 to transfer the call and hung up before I could even blink. A recording instantly came on "offering" to take my credit card information. I hung up and lost it. I called my district councilman and complained to one of his people. They said the were sorry, had received tickets at the airport before and "that is frustrating" but they couldn't help me and I will have to go through the process. I AM NOT PAYING IT!!! THIS IS THE LAST STRAW!!! I will not pay $25 or $10 or $2! I have been wondering were all the rage is over what has happened in our economy. Today I found mine. They cannont have my money for a bogus, doctored ticket that I didn't earn so they can pay for Michael Jackson's funeral.

...AND I'M NOT GOING TO TAKE IT ANYMORE!

HELP ME OBI WAN KENOBI...

I am not someone who likes to reinvent the wheel. Instead I like to take the more efficient route of finding an expert to show me the ways of the Jedi. What I look for in an Obi Wan is someone with whom I share the same values, who inspires, motivates, educates and provides pathways and strategies to get where I want to go. Luke Skywalker had Obi Wan Kenobi. I have Suze Orman.

Suze has all the a fore mentioned qualities and clearly has "the force." She is EVERYWHERE and in EVERYTHING. She has several books, a TV show, a website, podcasts, and makes appearances all over the world. She is also a friend of Oprah's, another Jedi Master.

Because I so admire her accomplishments and success, and because I want to do what is necessary to live rich, I am spending the month of May studying Suze. Dr. Maxell Malz, suggests that if there is a quality or behavior that you would like to acquire, you should pick someone who has that quality and learn more about them. His method is to "...study (them) for a month, to get so intimately familiar with the way he or she thinks that you can sit down and have a conversation with the person and solicit advice and coaching in your imagination." I will use her wisdom like a light saber against the evil forces of the The Empire at Bluefly.com (Cue Star Wars theme).

On a side note, Yoda has some profound ideas! Use the sunken ship as a metaphor for pulling your __________ (fill in the blank) from the swap in Dgobah.

HERE I GO AGAIN...

I started writing this blog in 2007. Within the first few posts I admitted that I have a short attention span and start and stop things all the time. I had a good run at posting and then one day, stopped. So here I am now re-interested and re-wanting to share info I learn from experts and other folks on how to get and live rich.

At this point I am the only one reading this blog I am sure. I 'll tell my mother and my sisters and my best friend that I have started up again. Those women know me pretty well but in case someone else accidentally winds up on this post, here is how I define RICH:

RICH IS HAVING ENOUGH FREEDOM TO DO WITH MY LIFE WHAT BRINGS ME THE MOST JOY.

Top Ten Things that bring me JOY:

1. Being able to live with myself and my decisions
2. My Family
3. My Friends
4. My Health
5. Service to others
6. Interesting and Challenging Work
7. Learning new things
8. Having new experiences
9. Getting enough sleep
10. Shopping

In the theme of this post, I offer you this: HERE I GO AGAIN! I...can't...stop...laughing! It's brilliant and Tawny Kitaen was hot. Someone should bring big hair back as an economic stimulus maneuver.