The price-earnings ratio, or P/E, is the most commonly quoted investment statistic, but have you ever considered what it actually means? For most people it's a shorthand way of deciding how
highly the market regards a company, with investors prepared to overpay for earnings from a high-P/E 'glamour' stock as opposed to a low-P/E 'value' stock. However, academics have known
since 1960 that the opposite is true: value stocks outperform glamour stocks consistently over decades.
A company with a low P/E may have been marked down for no readily apparent reason and thus could represent an attractive value investment for those with the patience to wait while the
market re-values it. However, the P/E is a backward-looking measure and just because the company earned 瞿1 per share last year it doesn't necessarily mean it will earn anything like that in
the foreseeable future. Or, a low P/E can mean a company is deservedly cheap because it is in financial difficulty - in this case the company is likely to become cheaper yet or even go into
administration.
This book is a practical guide to how you can adjust and improve the price-earnings ratio and use it, alongside other financial ratios, to run against the crowd and boost your stock
returns.
"This book offers essential scientific reassurance, as well as practical tools, to triumph over misconceptions and behavioral errors that distort stock market prices. I recommend it to
readers with great enthusiasm." -- Werner De Bondt, DePaul University
