A low PE portfolio beats the index hands down

IN the last article, we discussed one of the measures used by the market to value stocks – the price-earnings, or PE, ratio. We noted that the market likes high-growth companies and accords them a higher PE ratio.

The higher the price a stock trades at relative to its current earnings, the more difficult it is for it to meet the market’s expectations and the higher the probability its share price will underperform.