Investing Using PE by Justin Khoo - 16 August 2008

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  • 1. Investing in Uncertain Market Conditions By Justin Aug 08
  • 2. Typical Investor’s Mind
  • 3. KLCI
  • 4. P/E Ratio
    • P = Price = Market Value
    • E = Earnings = 1 year Earnings
    • Company ABC Price = 100k
    • Company ABC Earnings = 10k
    • P/E = ??
    • P/E = 10
    • P/E of FD = ??
    • Between 25 (if 4%) to 33 (if 3%)
  • 5. Historical and Current P/E At the KLCI’s closing level of 1,120.31 points on 8th August 2008, the local stock market is valued at a P/E of 13.3x on 2008 earnings, which is at a 21.5% discount to its 8-year average of 16.9x
  • 6. Using P/E to Invest
    • Buy LOW, Sell HIGH
    • Asset rebalancing according to P/E
    • Depends on risk profile
    • For investor who does not need money in the short term
    • Must also consider cost of rebalancing
    0% 100% 12 20% 80% 14 40% 60% 16 60% 40% 18 80% 20% 20 100% 0% 22 Bond Equity P/E