The math is a 100 PE implies a 1% yield. The company could distribute 1% of its value each year to the shareholders in perpetuity. Many started using FCF and PS ratios in recent years, but often this hides the actual profitability of the business. For example, FCF measures typically do not add back equity compensation.. which is obviously highly misleading for tech companies that issue a lot of stock
If a 100 PE company doubles earnings, they will yield 1%, then 2% etc. Of course if they don't pay dividends then this yield is "theoretical", but its the fundamental basis of how to price equities.
Coke (KO) which is a fairly stagnant company is at a 30 PE, while GOOG is at 20. It seems to me that most fund managers these days haven't lived in a time where valuation matters... everything is vastly mispriced for the most part. There are pockets of fair value though, but buying a broad index is a pretty bad idea right now, IMO.
In terms of bonds, they have a market value, but the yield is guaranteed (assuming the issuer doesn't default). If you buy a 1yr bond yielding 3%, and the issuer doesn't default, you will get a 3% return by the end of the next year. It doesn't work the same for bond funds, but this is how it works for individual bonds
If a 100 PE company doubles earnings, they will yield 1%, then 2% etc. Of course if they don't pay dividends then this yield is "theoretical", but its the fundamental basis of how to price equities.
Coke (KO) which is a fairly stagnant company is at a 30 PE, while GOOG is at 20. It seems to me that most fund managers these days haven't lived in a time where valuation matters... everything is vastly mispriced for the most part. There are pockets of fair value though, but buying a broad index is a pretty bad idea right now, IMO.
In terms of bonds, they have a market value, but the yield is guaranteed (assuming the issuer doesn't default). If you buy a 1yr bond yielding 3%, and the issuer doesn't default, you will get a 3% return by the end of the next year. It doesn't work the same for bond funds, but this is how it works for individual bonds