Asset Allocators' Soapbox: The problems with P/E and P/B ratios

Asset Allocators' Soapbox: The problems with P/E and P/B ratios

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While such multiples are useful, they should not be relied upon in isolation. Chris-Tommy Simonsen on why equity investors need to look beyond the numbers...

Ever since Benjamin Graham published his first book 80 years ago, value investors have used two financial ratios more than any other tool to identify investment opportunities: price/earnings (P/E) and price/book (P/B) multiples. The P/E multiple (a ratio of a company’s value to its historic or expected profitability) is perhaps the most popular of the two, and for good reason: it is easy to calculate and can offer an important insight into the degree of confidence investors have in a business. It can, however, be misleading. The ratio can be deliberately manipulated or affected by non...

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