samedi 9 avril 2016

Global ROE and global PE ratio

We often talk about some of our stock's ROE and PE ratio but rarely about our global ROE and PE.

That's a mistake because our portfolio is like a big conglomerate and we should think much more about balance between our stocks.

I've been investing money on the stock market for almost 7 years and I had never thought about doing the math about the ROE and PE of my portfolio. But it's never too late to learn and never too late to improve our methods.

So, I've took a look at the ROE (on and  forward PE ratio (on Yahoo Finance) of all of my stocks and I took consideration of the percentage of each stock in my portfolio.

I found that my conglomerate has a ROE of 32 and a forward PE ratio of 14 (I've used the forward PE ratio because I think it's a better number than the actual ROE when you're a growth investor).

So, I'm pretty satisfied with the ROE and forward PE of my portfolio. A company with a ROE of 32 and a forward PE of 14 would look pretty attractive to me.

Note to the readers: Try to do the same. You can have a couple of medium ROE stocks and a couple of high PE ratio stock. But with some adjustment, you can get a good balance and try to drop the PE at the same time as you try to elevate the ROE.

I'd be interested to read your results in the comments.

P.S. I haven't used adjusted ROE for stocks like Valeant and Allergan. If a business don't get positive earnings, I won't adjust the numbers. So, for both companies, I attributed a 0 for the ROE.

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