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Problems with the Price/Earnings ratio

Mar 14, 2014

Here is today's recommended reading list from Equitymaster...

What copper prices reveal about the economy?
Lead economic indicators give us an indication as to where the economy is headed in advance. It seems that copper price movement can turn out to be a good lead indicator. Most metal prices are up this year. However, copper is the only metal that has remained lackluster. Read on, to understand what the depressed copper prices mean for the economy in general and why the price movement of this metal is an important lead indicator of economic prospects. (The Growth stock Wire)

The must-have for investing in blue chips
To invest in smallcap companies investors need to have sufficient knowledge about the kind and long term sustainability of the business. They need to be aware of long term fundamentals. They need to verify the management quality. And finally they need to ensure that the valuations are attractive enough. Which of this is a must-have for investing in blue chips? Read on to find out. (Old School Value)

How to identify a shareholder friendly management
The management's integrity should rank very high up on the selection criteria of any long term investor. After all, the company management are insiders and they posses sensitive information which can influence the stock price. They take strategic business decisions which can make or break the company. How does one go about evaluating the management? This brilliant article identifies seven key criteria to determine if the management is shareholder friendly. (About.com)

The fall of the world's largest Bitcoin exchange
The world's leading exchange for the digital currency Bitcoin Mt. Gox collapsed when its systems were hacked by unknown cyber criminals. This resulted in a huge amount of wealth being destroyed. A lot of spectators were wiped out in this debacle. Read the story about it as well as an interesting analysis here. (Safe Haven)

Problems with the Price/Earnings ratio
The price/earnings (P/E) ratio is, without doubt, the most widely used method to value stock around the world. In fact, many people use it blindly without even considering any other parameter! However, the P/E ratio has many inherent flaws. Read on to find out what they are and how to use it wisely. (Morning Star)

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