Value Investing 1958 - 2008

The essence of value investing is buying stocks when they are oversold. Behavioral finance has shown that investors overreact and oversell. The trick is to know when stock prices are cheap compared to their value. Price/Earnings ratio is a frequently used indicator.

As an example, the chart below shows the PE-ratio plus the S&P500 from 1900 to 2008. You can see that low PE (oversold) conditions have marked the beginning of all periods with large upwards trends in the S&P500.

Investment: Risk & Return
Stock Market Crash
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