Wednesday, May 15, 2013

P/E Ratio Portfolios

Below, Corrections depicts ten different portfolios, organized based on P/E ratios.  For instance, one takes the lowest 10% of P/E ratios and puts them in one portfolio, and looks at the average return of that portfolio, and then takes the next 10% and puts them in another.

We then compare the returns, organized by decade (click to enlarge).


  1. So this graph suggests that higher decile (lower P/E AKA higher E/P) is generally equated with higher or indistinguishable returns. Seems generally higher in the 50's, 60's, 70's, maybe 80's and definitely 00's. Probably not so much the 90's or 10's though the 10's presumably only encompasses 3 or so years? Given that there was a stock market boom/great economy in the 90's that may have contributed to speculation and decreased returns vs traditional (low PE) strategies. Could say what about speculation of 2000's but there were two big crashes around that time to confound the results, the 90's only had 1 and it was at the very end perhaps not enough to weight. I wonder if you organize the data by 3 or 5 or some other period if you would see a more clear and consistent trend ie why be arbitrary with decades?

  2. And what group of stocks is this? All stocks on NASDAQ? S&P 500? Above a market cap of $X?