Should we be looking for stocks with forward P/Es greater than current P/Es or vise versa and why?

A:

Based on some of the questions you have asked recently, it appears you are combining a technical approach to position trading with valuation and other non-technical items. I have not found that to work, mainly because, in the exit decision, the non-technical factors can interfere with what the technicals are saying. If that works for you, then that is what counts.

I do not look at p/e ratios except every once in a while, when I compare forward p/e to its expected earnings growth for the next year. This is the PEG ratio, or price to earnings growth. The best performers often have PEGs of between 1:1 and 2:1. However, I never allow this to be part of the investment decision. Supply/demand is, in my view, the most efficient and effective means of position trading.

As I have mentioned, I only look at three things when I size up a stock: expected earnings growth, relative strength line, and technical chart pattern. Recent sales growth might be considered item 1A, as it is related to earnings.

In this day and age where we are inundated with information of all kinds, the challenge is not to find more info but to only use what is necessary. This is one reason I never watch financial television or pay attention to sentiment indicators: They add nothing.