Wednesday, June 23, 2010

Deception of P/e ratio

why did I consider DPZ as a buy for a long term when it was declining? There is one prod to this buying low and selling high delusion, that is the P/E ratio. I considered DPZ for long term because of its low p/e ratio i.e 8. Hmmm.

There are stocks like Netflix that have a p/e of 55 now. It has not yet crossed the 30 day average yet. There are also several stock that showed up on google stock screener that had p/e of more than 100 that still kept going up. example UXG. look at this stock with a negative eps how it is rallying. So one should not look at the p/e and make decision for long term hold. Probably p/e is useful in selecting stocks for dividend  pay for a long term. But for all practical purposes p/e should not be the determinant for buying or selling stocks.

that is the reason why i lost money recently on DPZ. Profits in bull and bear market...i reason how pertinent this book is now. This book warns about this blunder.

No comments: