Interesting. I think EV/EBIT or EV/EBITDA is better than P/E for selecting stocks. The reason is that EV/EBIT takes into account debt and calculates the relative price of the whole company, not just the equity. This is also supported by some studies, such as this one:
Good point EV/EBIT is much better. I might do a back test again to see what EV/EBIT he purchased at. But I enjoy the simplicity of P/E. Regarding EBITDA idk Munger calls it bullshit earnings.
Yes, the P/E ratio is very simple. To get the best result, one could also simply combine a low P/E ratio with a low P/B ratio. This was done in this paper and this combination gave the highest return: (I think you already do this e.g. related to your Japanese net-nets blog)
Interesting. I think EV/EBIT or EV/EBITDA is better than P/E for selecting stocks. The reason is that EV/EBIT takes into account debt and calculates the relative price of the whole company, not just the equity. This is also supported by some studies, such as this one:
https://scholarworks.uni.edu/cgi/viewcontent.cgi?article=1140&context=mtie
The good old P/B is also still powerful. In particular if you combine it with profitability:
https://www.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/134359-source/assessing-alternative-value-metrics-12fs.pdf
Good point EV/EBIT is much better. I might do a back test again to see what EV/EBIT he purchased at. But I enjoy the simplicity of P/E. Regarding EBITDA idk Munger calls it bullshit earnings.
Thanks for the comment
Yes, the P/E ratio is very simple. To get the best result, one could also simply combine a low P/E ratio with a low P/B ratio. This was done in this paper and this combination gave the highest return: (I think you already do this e.g. related to your Japanese net-nets blog)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1536618