{"id":23089,"date":"2021-01-21T09:10:02","date_gmt":"2021-01-21T13:10:02","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=23089"},"modified":"2021-01-24T18:08:58","modified_gmt":"2021-01-24T22:08:58","slug":"stock-market-metrics","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/stock-market-metrics\/","title":{"rendered":"Top Stock Market Metrics For Picking Great Stocks"},"content":{"rendered":"\n

Do you want to know how to evaluate the stock market? What stock market metrics are most useful?<\/p>\n\n\n\n

When learning about stock market metrics, there are two big metrics to consider: P\/E ratio and dividend yield. Understanding these metrics will help you make better investment decisions. <\/p>\n\n\n\n

Keep reading to find out how to evaluate stock market metrics.<\/p>\n\n\n\n\n\n\n\n

Stock Market Metrics<\/strong><\/h2>\n\n\n\n

Of course, when investing today, you don\u2019t have a stock chart for the future. You\u2019ll need to assess the market<\/a> to decide whether it\u2019s cheap or expensive. Graham uses two major indicators of stocks in this discussion:<\/p>\n\n\n\n

1) Price to Earnings ratio (P\/E ratio)<\/strong><\/p>\n\n\n\n

This is the ratio of the stock price to the company\u2019s earnings. If a company has earnings per share of $1, and its stock is selling at $10 per share, the P\/E ratio<\/a> is 10.<\/p>\n\n\n\n

In general, a P\/E ratio of 10 or below is low, and the stock is considered cheap. A P\/E ratio of 20 or above is high (or the stock is expensive). (Shortform note: However, as discussed later, the P\/E ratio is not by itself a good indicator of whether to buy a stock, since a failing company with poor future prospects will also have a low P\/E ratio.)<\/p>\n\n\n\n

2) Dividend yield, relative to bond yield<\/strong><\/p>\n\n\n\n

A stock\u2019s dividend yield is the amount paid in annual dividends per share of stock, divided by its stock price. If a company pays $1 in dividends per share, and the stock price is $20, the dividend yield is 5%.<\/p>\n\n\n\n

The bond yield is the return on a bond. Simplistically, if a bond costs $1,000 and pays $100 per year, the yield is 10%.<\/p>\n\n\n\n

Comparing the stock\u2019s dividend yield to the bond yield suggests whether stocks are likely to outperform bonds in the short-term, or vice versa. If the bond yield is notably higher than the stock\u2019s dividend yield, it might indicate that stocks are overpriced.<\/p>\n\n\n\n

Both of these indicators can be calculated for individual stocks, as well as for a collection of stocks or the stock market as a whole.<\/p>\n\n\n\n

Understanding stock market metrics can help make you a smarter investor. <\/p>\n","protected":false},"excerpt":{"rendered":"

Do you want to know how to evaluate the stock market? What stock market metrics are most useful? When learning about stock market metrics, there are two big metrics to consider: P\/E ratio and dividend yield. Understanding these metrics will help you make better investment decisions. Keep reading to find out how to evaluate stock market metrics.<\/p>\n","protected":false},"author":5,"featured_media":23103,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,81,31],"tags":[184],"class_list":["post-23089","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-economics","category-money","tag-the-intelligent-investor","","tg-column-two"],"yoast_head":"\nTop Stock Market Metrics For Picking Great Stocks - Shortform Books<\/title>\n<meta name=\"description\" content=\"What are the best stock market metrics? By evaluating P\/E ratio and dividend yield, you'll get a better understanding of stocks. 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