Re:When Will the Tech Bubble Burst?
by vostok on Sunday August 06, 2017 @02:40AM
(#14940077)
Yes I agree that cap weighting doesn't over buy the low P/E stocks.
I'm not sure I agree that low P/E means that a stock is undervalued. For example a company that is guaranteed to make $10 every year should probably have a higher P/E than a company that is expected to make $10 with $1 variance.
If we move to a more abstract notion of undervalued then I still agree with you that cap-weighting isn't guaranteed to overweight the undervalued stocks.
I'm not sure I agree that low P/E means that a stock is undervalued. For example a company that is guaranteed to make $10 every year should probably have a higher P/E than a company that is expected to make $10 with $1 variance.
If we move to a more abstract notion of undervalued then I still agree with you that cap-weighting isn't guaranteed to overweight the undervalued stocks.