Bonds and Fixed Income

[gfp927z]

Bar, Another factor with PE ratios is that for cyclical type businesses, the rules can be reversed --> the PE can be highest at the bottom of the cycle (because earnings have fallen so much), and the stock price is the lowest. So for cyclicals, the highest PE point can be the best time to buy. Peter Lynch discussed this phenomenon, and it seems counterintuitive (High PE = buy, Low PE = sell), but it's because of the highly cyclical earnings.

But CTAS and Costco have extremely steady businesses, so are the opposite of cyclicals. This is one reason why I decided to stick to the S+P 500, for the simplicity. But for the S+P 500 as a whole, the traditional PE rules apply, so high PE = danger. Right now the PE is approaching 28 (S+P 500), which is another reason why Buffett has so much cash.



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