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

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...