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The Essential P/E: Understanding the stock market through the price-earnings ratio by Keith Anderson

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Conclusion

In a short book we have been on a long journey, from how earnings are calculated, to splitting out the components of the P/E and combining them in a stock filter with Piotroski’s Fscore.

Here I try to summarise the most important lessons. Many of them are about the stock market and value shares in general, not just about the P/E. I also give a few pointers to how this work might be taken forward in the future.

  • Even confirmed value investors agree that the market is mostly efficient, most of the time, at least for larger stocks. If the market were fully efficient, Warren Buffett would be ‘a bum on the street with a tin cup’, as he puts it, not one of the richest men in the world. Where believers in efficient markets part company ...

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