Wednesday, October 15, 2008


It is funny how just a few days ago people were panicking to buy stocks at these levels. Where did the enthusiasm go? What does it take for stocks to be attractive? PEs with 10 multiple?

This chart is from

So if we use the 1974 bear market as comparison to our market, we nee our trailing PE ratio to be around 8 before the bottom is found.

The same thing can be found here.

Currently I estimate that with S&P 500 at 900, the trailing PE is 17.4 (SPY PE shows 14ish, but I think these are a little old). That means we need a 50% price hair cut to return to 1974 lows. Going forward we expect earnings to drop more, requiring an an even bigger drop in price to bring us to a low PE.

So next time you hear that the PE ratios are attractive here, remember this.