Re: An Arithmetic mystery - need help
Great question. In fact for me a market based p to e year over year makes more sense than company specific p to e year over year. Because while one company can have volatility from one year to another, the combined earnings of all companies would (I think ) smooth out some of the volatility.
Having said that in some down years - esp 2009 trough, even mkt earnings dipped a LOT. Giving an artificially high p to e ratio. Similarly during 2000 tech bubble the E was way way high. Peak earnings. IN SPITE of that p to e was 40 I think for mkt. So way way expensive. So yes p to e quite useful.
to smooth out year over year volatility simple use case Schiller p to e - inflation adjusted earnings for last 10 years. It will 5ell u mkt is overvalued. And was way way overvalued in 2000. And also in 1929. And 2007.
So yes. Useful.