I'm not trying to claim that there is any "correct" p/e ratio, its just an indicator or signal like anything else.

The p/e ratio is an interesting indicator because it more directly ties together the how much money the company actually makes relative to what I'm paying for it.

P/E ratios over time can be good indicators of relative value of the company. I'm not exactly inventing economic or investment theory here to point to high p/e ratios as an indicator of overvalued companies.

    high p/e ratios as an indicator
    of overvalued companies

Again, you say that as if there was some kind of agreement on what a "high" p/e ratio is. But what is it? Since you multiple times mentioned "historical averages", I guess you assume that above the historical average means "high". But that is a big statement. How do you back it up?

Imagine an investor in 1988 (the middle of the p/e chart you linked to) who took your approach. From their perspective, the historical average p/e of the S&P 500 is about 15. Would they have played the market by selling over 15 and buying under 15, they would have missed almost all of the nice long rally that came in the decades after.

Again, I'm not claiming there is a "right" p/e ratio. High is relative though, and relative to historic ratios the market is overvalued roughly on the scale of the leadup to the dotcom bubble. Are you arguing that isn't the case, or that just doesn't matter and isn't a good indicator?

> they would have missed almost all of the nice long rally that came in the decades after.

I wasn't saying to buy and sell as the ratio goes above/below some specific threshold. More importantly though, this is ultimately cherry picking. You can always look back at historic data and define a start point, or a start and end point, to make an argument work. That has little, if any, weight on predicting what will happen in the future.

I'm being pretty careful here to not claim to know what prices or the economy will look like in the future. I'm simply sharing my read on p/e ratios, what my own take away from they is, and where what I see as historic outliers are.

You said "company values seem completely unhinged from reality".

What do you mean by that?

I could have been more clear there for sure. I don't understand the multiples being offered to companies today in the stock market. Specifically I'm thinking about multiples relative to revenue, earnings, or profit.

When I'm investing in a business I want to know how quickly I can get my money back, and how risky I think the investment is relative to my expected gains.

When I'm investing in baseball cards I want to know how much the next person will pay me for it. The stock market seems much more inline with that today, and in any reality where stocks are meant to be considered investment that seems disconnected or entirely unhinged.

You don't understand the p/e ratios of any company? You mean they all seem much to high or much too low to you?

Let's talk about a specific company then. Which one have you looked into recently?

I was talking about the average p/e ratios in the market today. Though they are around 1.7 standard deviations above historical trends, so while there will be some that aren't high relative to historic trends most are.

Now we are back to the theory that above the historical average means high. I give up. We are talking in circles.

the flaw in P/E ratio is that it is only a snapshot of what is currently happening today.

For fast growing companies, it’s useless because they quickly add new revenue streams and profits can change quickly.

If you are purely investing off of sane P/E ratios, you might make some safe investments, but you will always be late to the party.

There's more risk in investing on growth though. You could be late for the party or you could avoid the funeral.