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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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