Dr. Martin Hash Podcast

Nothing shouts “scam” at the Stock Market like the PE ratio: basically, how many years it takes for a stock to pay for itself. For example, if the price of a share of stock is $50, and Earnings were $2 per share, the PE would be 25, which is the average PE ratio today, so 25 years for payoff; that's like buying a house. Normally when you invest in anything, you want a yield in the order of 7-10% which would be equivalent to a PE ratio of 10-14, the lower the better, so today's PE ratios ridiculously long timeframes strain the definition of investing, and that assumes the earnings are paid out as Dividends. Not declaring Dividends just makes it worse because PE is not compounded.

Supposedly, if a company does not declare Dividends equal to the Earnings, the Price Per Share goes up to reflect the Retained Earnings, and the stockholder's Equity increases, but in reality this additional liquidity is used to justify stock buybacks, which manipulate the PE in an incestuous loop of phony numbers all intended to justify stratospheric executive bonuses. However, as artificial as this all is, the Stock Market is simply a reflection of the imaginary money that comprises it. Economics is a kind of magic that only works when enough people believe. It works because optimism, fantasy, and gambling generate dopamine, the elixir of elation, the positive feedback on life, liberty, and PE.