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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Stocks PEs vs history Date: 4/25/2004 12:42 PM
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Well the results of my survey wondering whether stock prices would regress to historic means was quite a horse race, with 54% of respondants thinking we were headed for a crash, and 46% thinking high PEs didn't matter:

http://boards.fool.com/Message.asp?mid=20670940&view=results

The day after I posted, Matt Richey published a similar article in TMF:

http://www.fool.com/news/commentary/2004/commentary040423MR.htm?source=mptoppromo

Much of the article discusses the work of financial author John Mauldin...in the end both Richey and Mauldin conclude that based on historical data, the market as a whole is headed for a fall, though some "deep value" and dividend paying stocks are out there which will fare well even if markets drop.

I agree with this thinking- having part of your wealth in stocks is a good idea, but not blindly in the S&P 500. Picking stocks is the best way to go (example PKX, a growing large cap with a 6% yield and a PE of 12 which also provides international diversification). There are also more defensive mutual funds out there, for example Vanguard's Equity Income fund- it has a PE is 16.9, and the yield is 2.37%.

You'll also want a healthy fixed income (example: CHC, which owns a porfolio of tax exempt revenue bonds yielding 6.76%) allocation, and some REITS (I own FUR).

Just some Sunday morning food for thought.

Nick
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Author: MissouriGup Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40690 of 75340
Subject: Re: Stocks PEs vs history Date: 4/26/2004 5:30 AM
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Well the results of my survey wondering whether stock prices would regress to historic means....

I believe the historic P/E of the S&P 500 averages out somewhere around 16. According to Barra's, at the end of March the S&P 500 had a P/E of 22.85. In our new information age, I would think the market will for the most part trade higher than it historically has. Regardless of all that, anytime I've tried to play market forecaster I've been burned. My plan is to just keep plodding along, not try to out guess the market. I'm betting 20 years from now the market will be substantially higher than it is now.

Gup

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