Comments on: An Exercise in Futility – Estimating the Future of the Dow Jones Industrial Average

By: Rick

Rick — Sat, 22 Mar 2008 16:53:44 +0000

Great post. From a behavioral prospective, I think many investors look to P/E when allocating income. I feel that a couple good news stories could drive attention to the low P/Es and spark a nice rally. While 14,000 may be an aggressive goal, I am confident that the DOW will show some strength over the next 6 months.

By: JLP

JLP — Fri, 21 Mar 2008 16:07:41 +0000

Wilson,

I would say there’s always that possibility, which would spell a good buying opportunity. I don’t see a P/E ratio in the mid-teens to be a good buying opportunity.

By: James

James — Fri, 21 Mar 2008 14:40:04 +0000

I watch the DOW. Have over $100,000 invested through Edward Jones. Did well, Retained about $20,000 in the last three years. Would have gained $35,000 but family would not let me take it out at the right time, which was last March.

Now, it is invested in a safer environment through EJ still.

But, I have noticed that the DOW changes with the FED helping or some good report. A Lot of selling and and buying back and forth.

Yet, I believe that it is all a hot air balloon. If it is hot it rises…if it is cold it falls. But none of it is really based on real economical facts.

The housing market is cold for sure. Large companies are down sizing. People are being forced into early retirement. And there is a trend that I see and that is companies everywhere rethinking the amount of people that have hired. Lay off with a mind to stablize there company. Smart moves. But, it seems that no one is speaking of the trends only what the FED does…when that they are doing is not helping the average folks. Try to get a loan for a house. Even with excellent credit…they are not loaning on current down sized FED monies, but on their past borrowing. So, they still are charging high interest. I was lucky. I have a 4.75% on my house and only owe 10 years more.

By: Wilson

Wilson — Fri, 21 Mar 2008 13:38:53 +0000

The news a few days ago was that Goldman Sachs’ earning fell by nearly half to $5.12 billon from last year, and down by 26 percent from the fourth quarter,
Conservatively speaking, in a bear market, the earnings will be down about 30% and the P/E ratio will hit 12 or even 7. This gives estimated DJIA earnings of 654.6.

Now let’s project the new number for DJIA:
P/E Expected DJIA Level
7 4,582.2
8 5,236.8
9 5,891.4
10 6,546.0
11 7,200.6
12 7,855.2
13 8,509.8
14 9,164.4
15 9,819.0

I’d say DOW 7,200 is a good probability.

By: Fiscal Musings

Fiscal Musings — Fri, 21 Mar 2008 03:31:58 +0000

I see the value in using the P/E ratio to evaluate stocks, but I’m not so sure about applying it to an index. The companies are so diverse in size, industry, and many other factors. I suppose there’s some value in it, but I wouldn’t rely on it too much.