Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (14) | Ignore Thread Prev | Next
Author: DrtThrwingMonkey Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19963  
Subject: Re: What is your Avg Portfolio PE? Date: 2/9/2013 4:43 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4

Stock PE Value % of total PE Fraction

Stock A 6 5000 58.82 3.53
Stock B 200 500 5.88 11.76
Stock C 18 2000 23.53 4.24
Stock D 45 1000 11.76 5.29

8500 100.00 24.82

The PE average is the sum of the PE fractions or in this case 24.82.

Stocks with very high PEs or no earnings must be dealt with. I use a
dummy value of 200.



Fraction arithmetic doesn't actually work this way, and this is shown by your calculation which obtains the wrong result. Stock A has a low PE (6), and constitutes almost 2/3 of your 4-stock portfolio, so even if the 3 other stocks had zero earnings, your PE should be just over 10. If the other 3 stocks have any earnings at all, the real average would be under 10.

It would be methodologically better to add a column, 'Earnings', so that for chart becomes:

Stock PE Value Earnings % of total PE Fraction

Stock A 6 5000 833.3 58.82 3.53
Stock B 200 500 2.5 5.88 11.76
Stock C 18 2000 111.1 23.53 4.24
Stock D 45 1000 22.2 11.76 5.29

Total 8500 969.16 100.00 24.82



Your average P/E is now just the sum of the Value (price) divided by the sume of the E (earnings), in other words, 8500/969.17 = 8.77.

This method handles high or negative ratios without the need for any dummy value, and in fact you don't need your last 2 columns either. Your actual results might be a little different, since Stock B's earnings are maybe not 2.5, if that 200 multiple was a dummy.

Regards, DTM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (14) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Smuggling Rice and Garlic
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement