and whoever wants to be first must be slave of all. For even the Son of Man did not come to be served, but to serve, and to give his life as a ransom for many.”

27 Dec 2017


Hi Friends,   The price-earnings ratio (P/E), or price-earnings multiple as it is sometimes called, is the most popular and widely used of all investment indicators.  It is a time-tested and handy tool for evaluating share prices and for assessing investor confidence in different companies.  P/E averages can also be used for judging investor confidence in industries, groups of industries, in the economy as a whole and even in the stock market.  P/E averages are also indicators of what the stock market and the investing public think of the present health of the economy and its future prospects.  An understanding of P/E ratios, what they signify and how they can be effectively used for making investment decisions is necessary for achieving success in the stock market.

  P/E ratios find their most common use in the evaluation of share prices.  The P/E ratio can be used as a yardstick for judging whether a particular company’s shares are overpriced or underpriced.  In this way it acts as an index for helping you decide at what price to buy a particular company’s shares.  It also serves as a signal telling you when and at what price to sell a particular share.  Now let us see how this is done in actual practice.

Investor confidence in a company does not build up overnight.  The build-up confidence is a slow process which takes considerable time.   Conversely, erosion of confidence in a company also takes an equally long time. This is why blue-chips on the decline continue to enjoy strong investor support long after the reasons for this support disappear.  This is because markets have a long memory and do not easily forget the past.  Instead of being future-oriented , most of the investors and other market men continue  to be hopelessly rooted in the past.  Stock markets are notoriously slow to recognize value and even slower to use it for taking rational and intelligent investment decisions.  All this is a part of the basic irrationality that exists in the stock market.So investors should study the implications of P/E ration before investing in shares.

Good Luck.                                                                     See You Later.

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