Rule Breaker Mailbag: Are Historic Market P/E Ratios Still a Good Gauge of Market Frothiness?
In this segment from Rule Breaker Investing, Motley Fool co-founder David Gardner gives some thought to what his questioner views as a natural outgrowth of the idea that "winners keep winning." We can gauge whether a market is "pricey" or over-exuberant based on how price-to-earnings (P/E) ratios generally look compared to historic averages. However, this needs to be seen in the context of interest rates.
When interest rates are low, investors, both international and domestic, may see more opportunities in the U.S. stock market than elsewhere. With more money flowing into U.S. markets, the historical P/E ratio may be less significant. David gets to the heart of matter.
A full transcript follows the video.
Source: Fool.com
