Investing Using PE by Justin Khoo - 16 August 2008

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Investing Using PE by Justin Khoo - 16 August 2008

  1. 1. Investing in Uncertain Market Conditions By Justin Aug 08
  2. 2. Typical Investor’s Mind
  3. 3. KLCI
  4. 4. P/E Ratio <ul><li>P = Price = Market Value </li></ul><ul><li>E = Earnings = 1 year Earnings </li></ul><ul><li>Company ABC Price = 100k </li></ul><ul><li>Company ABC Earnings = 10k </li></ul><ul><li>P/E = ?? </li></ul><ul><li>P/E = 10 </li></ul><ul><li>P/E of FD = ?? </li></ul><ul><li>Between 25 (if 4%) to 33 (if 3%) </li></ul>
  5. 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. 6. Using P/E to Invest <ul><li>Buy LOW, Sell HIGH </li></ul><ul><li>Asset rebalancing according to P/E </li></ul><ul><li>Depends on risk profile </li></ul><ul><li>For investor who does not need money in the short term </li></ul><ul><li>Must also consider cost of rebalancing </li></ul>0% 100% 12 20% 80% 14 40% 60% 16 60% 40% 18 80% 20% 20 100% 0% 22 Bond Equity P/E

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