|Author||Topic: A question about rate of return for equities|
|hello all: can someone pls. clarify the following:
1. equity returns are = expected growth in real dividends + expected growth in real earnings
2. so where does the P/E of a stock enter into the rate of return equation?
3. wasn't this the problem with the valuation of all the dot.com stocks: no fundamental growth in earnings but very high P/Es??
|I don't have comments on the first 2 points as I don't really get what you were asking, but on No. 3 I believe the main problem with valuation of (typical) dotcom stocks was NO TRAILING EARNINGS rather than no "fundamental growth in earnings" you stated. Expected earnings were sometimes positive but the reality mostly proved otherwise.
One valuation metric used at that time was Price/Sales (still sometimes is used for some high techs today); more ridiculous metric used at that time was of course "the number of hits/eye balls" .... :-O Who could forget?
E/P (the inverse of P/E) is the current dividend yield
try REQ RTN = DIV YLD + GROWTH RATE
although for DIV YLD you should use DIV1 not DIV0
|forget I said that|
CFA Discussion Topic: A question about rate of return for equities
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