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QuestionsCategory: Investor PsychologyValuation of PTB cos vs PE cos
Viv asked 5 months ago

Why is it that for cos using PTB valuation, one should buy the co only if the PTB is below ave, (i.e. 1 or 2 SD below ave) but for cos using PE valuation, one could buy at ave PE if co has strong biz model or economic moat? Note that the former type of cos have backing of solid assets like investment properties but latter type of cos is dependent on its biz model to continue generate reliable future earnings.   

1 Answers
Victor Chng answered 5 months ago

Hi Viv,
 
PB is use to value asset based business. Sometime, the asset may be overstated due to high valuation, hence if you purchase at average, you may be buying expensive assets.