No. of Recommendations: 1

OK, this is my first post here, so I apologize if this is old info. In chapter 3 of Beating the Street, Lynch explains a strategy he used in buying small caps. There is a 30-year graph of the PE ratio of the T. Rowe Price New Horizons Fund (PRNHX) relative to the PE of the S&P 500. In other words, he divided the New Horizons PE by the S&P 500 PE and graphed the result over time. The numbers basically ranged between 1 and 2. His belief was that when the New Horizons PE was double that of the S&P 500, ie when the graph was around 2, "small stocks got clobbered for several years afterward. [...] Clearly the best time to buy emerging growth stocks is when the indicator falls to below 1.2."

Well, I looked up the PE of the New Horizons fund and it is 26. The PE of the S&P 500 is 20.62, which puts Lynch's indicator at 1.26. Not exactly below 1.2, but right in that neighborhood.

If I'm going about this correctly, it would seem like now would be a good time to invest in small caps. Anyone care to comment on this?

By the way, I have most of my money invested across various index funds, but was thinking this might be a good way to tweak my contributions for the near future.
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If I'm going about this correctly, It would seem like now would be a good time to invest in small caps.

I would wait for the indicator to drop below 1.2.

It is always better to invest in small cap emerging growth stocks than in large cap stalwarts. Many small caps, however, are not growth stocks.

jkm929
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I would wait for the indicator to drop below 1.2.

Thanks. However, the New Horizons PE figure was from the 1/31 report from T Rowe, and the S&P one was from yesterday, so the resulting ratio might be a tad off.

It might be interesting to find the recent historical info for these two PE ratios, just to see it in context. I'm sure I can get the New Horizons info from T Rowe, but I was unable to find the S&P 500 historical PE at either S&P's own website, Morningstar, or Bigcharts. Historical quotes, yes, but historical PE, no. Anyone got some advice as to where I can look this up online?

I used to keep an ongoing graph of this a few years ago, but my briefcase was stolen and I lost the graph :-(

Then I opened a business and was unable to make contributions to my investments for about 3 years, and now that we've turned the corner and are actually making money, I'd like to get back into keeping track of this figure.

I'm kind of surprised that I never see reference to this strategy anywhere outside of Lynch's book. As famous as he is, you'd think someone would have this graph up on a website or something?
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but I was unable to find the S&P 500 historical PE at either S&P's own website, Morningstar, or Bigcharts. Historical quotes, yes, but historical PE, no. Anyone got some advice as to where I can look this up online?

Go to http://www2.standardandpoors.com/servlet/Satellite?pagename=sp/Page/IndicesIndexPg&l=EN&b=4&f=1&s=6&ig=48&i=56&r=1&xcd=500&fd=EquityEarnings and where it says:

S&P 500 Earnings and Estimate Report, including Divisors and Aggregates, Core Breakdown, and Dividends, click here

proceed accordingly.

jkm929
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Well, it looks like I was going about this the hard way. The info I was looking for seems to be published in the annual and semi-annual reports for the New Horizons fund. The last-published number is from June 2004, with the PE of the NH at 1.49 that of the S&P 500.

http://www.troweprice.com/common/index3/0,6549,lnp%253D10094%2526cg%253D910%2526pgid%253D7898,00.html

You have to click on domestic stock funds, then on New Horizons. The graph is on page 8 or 9. According to their graph, you have the following:

For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

The December 2004 report is not yet available.

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Well, for anyone keeping track, Lynch's indicator hasn't changed much in the last few months. Previously, I'd posted that


For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.


Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.
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No. of Recommendations: 3
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.


The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.
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No. of Recommendations: 1
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.

The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.


The 6/06 report is now available, and the NH PE was 1.62 that of the S&P 500. This is still at the highest relative level in two decades.
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No. of Recommendations: 1
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.

The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.

The 6/06 report is now available, and the NH PE was 1.62 that of the S&P 500. This is still at the highest relative level in two decades.


The 12/06 report is now available, and the NH PE was 1.49 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.
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No. of Recommendations: 2
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.

The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.

The 6/06 report is now available, and the NH PE was 1.62 that of the S&P 500. This is still at the highest relative level in two decades.

The 12/06 report is now available, and the NH PE was 1.49 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.


The 6/07 report is now available, and the NH PE was 1.5 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.
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No. of Recommendations: 1
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.

The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.

The 6/06 report is now available, and the NH PE was 1.62 that of the S&P 500. This is still at the highest relative level in two decades.

The 12/06 report is now available, and the NH PE was 1.49 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.

The 6/07 report is now available, and the NH PE was 1.5 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.


The 12/07 report is now available, and the NH PE was 1.62 that of the S&P 500. Still very near it's highest level of the last 25 years.

Boy, this sure is getting boring!
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No. of Recommendations: 1
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.

The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.

The 6/06 report is now available, and the NH PE was 1.62 that of the S&P 500. This is still at the highest relative level in two decades.

The 12/06 report is now available, and the NH PE was 1.49 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.

The 6/07 report is now available, and the NH PE was 1.5 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.

The 12/07 report is now available, and the NH PE was 1.62 that of the S&P 500. Still very near it's highest level of the last 25 years.


The 6/08 report is now available, and the NH PE was at 1.67 that of the S&P 500. This is the highest level in 25 years.
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No. of Recommendations: 1
For 12/03, the NH PE was 28.1, or 1.57 that of the S&P 500.

For 6/04, the NH PE was 25.1, or 1.49 that of the S&P 500.

Two more reports are now available:

For 12/04, the NH PE was 1.5 that of the S&P 500.

For 6/05, the NH PE was 1.49 that of the S&P 500.

The 12/05 report is now available, and the NH PE was 1.6 that of the S&P 500. This is the highest relative level in two decades.

The 6/06 report is now available, and the NH PE was 1.62 that of the S&P 500. This is still at the highest relative level in two decades.

The 12/06 report is now available, and the NH PE was 1.49 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.

The 6/07 report is now available, and the NH PE was 1.5 that of the S&P 500. This is still very near the high end of its range over the last 20 to 25 years.

The 12/07 report is now available, and the NH PE was 1.62 that of the S&P 500. Still very near it's highest level of the last 25 years.

The 6/08 report is now available, and the NH PE was at 1.67 that of the S&P 500. This is the highest level in 25 years.


The 12/08 report is now available, and the NH PE has decreased to 1.45.
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Should read

The 12/08 report is now available, and the NH PE has decreased to 1.45 that of the S&P 500.
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No. of Recommendations: 2
The 6/09 report is available and the NH PE is (was) 1.6 that of the S&P.


The 12/09 report is available and the NH PE is 1.75 that of the S&P.
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No. of Recommendations: 4
The 6/10 report is out, and the NH PE was 1.94 that of the S&P, the highest level since 1983.
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No. of Recommendations: 2
The 6/11 report is out, and the NH PE was 2.03 that of the S&P, the highest level in decades.




The 12/11 report is also out, and the NH PE was 2.04 that of the S&P, still at the highest level in decades.
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No. of Recommendations: 1
I must have missed the 6/12 report, but from the graph it looks like the NH PE was around 1.9 that of the S&P.



In 12/12, the NH PE was 1.94 that of the S&P.



In 6/13, the NH PE was 1.83 that of the S&P.



in 12/13, the NH PE was back up to 2.13 that of the S&P.
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In 6/14, the NH PE was up to 2.15 that of the S&P.
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