Investing in index funds, many investors are used to looking at valuation, underestimating buying and overestimating selling profit is the ideal state of investment. P/E ratio and P/B ratio are commonly used index valuation methods. What's the difference between them? How to judge whether it is overestimated or underestimated? Today, Bian Xiao will share with you the difference between P/E ratio and P/B ratio for your reference only!

The difference between price-earnings ratio and price-book ratio

1, price-earnings ratio (PE)

First of all, let's look at the price-earnings ratio, abbreviated as PE, where "market" refers to market value and "profit" refers to profit and net profit, so the price-earnings ratio is equal to the ratio of total market value to net profit, and also equal to the price per share/earnings per share.

For example, suppose you have a fruit shop with an annual net profit of 65,438+10,000 yuan. Lao Wang takes a fancy to your store and wants to bid 654.38+00,000 yuan to buy it. This 6,543,800 yuan is the market value of the fruit shop. Divided by the annual net profit of 6.5438+0 million yuan, he will have to pay 654.38+00 yuan.

The lower the P/E ratio, the lower the market value of the stock, the more undervalued it is, and the higher the safety margin of buying.

You may find that the P/E ratios of different indexes are quite different. For example, the P/E ratio of SSE 50 Index 10/month10 is only 1 1.9, while the P/E ratio of GEM Index is 65.2. Can this show that SSE 50 has more investment value than GEM index?

No, because the compilation method of each index is different from that of constituent stocks, so the valuation standards are different.

SSE 50 is the representative of large-cap blue-chip stocks, while the constituent stocks of GEM are mostly emerging industries such as TMT. Although the fluctuation is large, the increase is high, so the market will give a higher valuation than the blue chip market.

Because the P/E ratio is closely related to the company's profits, it is more suitable for industries with stable profits. For example, in industries such as consumption and medicine, no matter how the economic cycle changes, everyone should eat, drink and see a doctor.

For cyclical industries with large fluctuations and even negative profits, such as steel, coal, construction, securities firms, banks and so on. PE is of little reference value. This kind of industry is more suitable to refer to the P/B ratio PB.

2. P/B ratio

Then look at the price-to-book ratio. As above, the "market" of P/B ratio is still market value, while "net value" represents net assets, and P/B ratio is equal to the ratio of total market value to net assets.

Net assets are what we often call book value. Similarly, the lower the P/B ratio, the more undervalued it is.

If the P/B ratio is as low as 1, the market value is equal to the net assets, which means that even if the company is not profitable, the liquidation is likely to lose money.

If the P/B ratio is lower than 1, it is called "breaking the net". Of course, investing in broken net stocks does not necessarily make money. After all, the phenomenon of breaking the net may mean a sluggish industry or poor profitability. It may take a long time to get through the current predicament.

Overestimation and Underestimation-Percentile of Valuation

So apart from this special situation, how to judge whether the current index valuation is high or low? Usually we use "valuation percentile" to judge.

This indicator is used to indicate the position of the current valuation in the historical interval. For example, the percentile of an index is 90%, and its valuation level has been in the position of 90% since childhood, which is higher than 90% in history and only cheaper than 10%.

Therefore, the higher the valuation percentile, the more overvalued it is.

In practical application, we should pay attention to two points:

1. Different statistical intervals have different percentiles.

At present, our assistants in southern fund use the percentile of nearly 10, and other institutions may also use the data of nearly 8 years and 5 years. This is also the reason why different institutions provide different valuation percentiles.

However, it should be noted that the longer the statistical data, the better, because the market is changing, and the valuation of related indexes will also change.

For example, the highest valuation of the Shanghai and Shenzhen 300 Index during the bull market in 2007 and 2009 was much higher than that during the bull market in 20 15. If we blindly refer to the valuation in 2007 or 2009, it is somewhat like carving a boat for a sword.

2. The decline in earnings may lead to a passive increase in the valuation percentile of P/E ratio.

P/E ratio = market value/profit. If the profit drops sharply, it will lead to a passive increase in P/E ratio.

For example, during the financial crisis in 2008, many constituent stocks of the Standard & Poor's 500 went bankrupt in a short period of time, resulting in a sharp drop in the profits of the Standard & Poor's 500. In a short time, the price-earnings ratio reached ten times, becoming the highest percentile in history.

In the past two years, the domestic media industry has also encountered similar problems, and the profit has dropped to one-third of the original, leading to a passive increase in the P/E ratio of the media industry. At this time, the percentile loses its reference significance.

So the percentile also has some limitations. While mentioning the percentile, we can't ignore the profitability of the company behind the index.

In the past two years, the returns of funds purchased by many investors are generally unsatisfactory. What caused the large losses of most funds? Mars, an analyst at Shanghai Securities Fund Evaluation Center, pointed out that, first of all, the essence of fund products is the combination of securities, and the performance of fund income is closely related to the performance of the underlying market. In the continuous decline of the stock market, it is difficult for equity funds and hybrid funds, which mainly invest in stocks, to achieve positive returns. In the case of rising stock market, most partial stock funds can often achieve positive returns. Therefore, it is impossible for funds to create myths and create high positive returns in the continuous decline of the market in recent years.

From the long-term performance, in most cases, the overall performance of funds is better than that of individual investors, especially in bull markets and volatile markets. For example, in 2006 and 2007, more than 80% of equity funds achieved a return of more than 100%, while the proportion of individual investors was less than 20 12 years. Nearly 50% of equity funds have achieved a return of 5% to 30%. According to the survey, more than 50% of individual investors have lost between 5% and 50%. Therefore, the fund is still a good investment tool for individual investors to participate in the capital market.

All kinds of problems, whether China's stock market construction, economic development or asset management industry, can't be eliminated in a short time, and all need the rationality of the market as a whole to promote it. However, as investors themselves, we must measure our risk tolerance clearly and not blindly listen to the propaganda of sales staff. If your risk tolerance is weak, or the funds you want to use in the short term, you can't invest too much in a single stock fund to avoid being greatly affected by the risk of stock market fluctuations. Therefore, for individual investors, it is more meaningful to have a long-term investment mentality, choose appropriate fund products according to their own risk tolerance and renewal, avoid excessive pursuit of popular funds with outstanding short-term returns, pay more attention to funds with relatively stable long-term performance, and spread risks through fixed investment and portfolio allocation to obtain long-term stable returns.

Fund-related articles:

★ Introduction to Xiaobai Fund

★202 1 You won't lose everything if you buy foundation.

★ Basic knowledge and skills introduced by the Fund

★ Knowledge of fund investment skills and methods

★ Introduction to Fund Investment

★ Introduction of Index Fund's Fixed Investment

★ Common sense of securities investment funds

★ Reading Skills of Annual Report of Securities Investment Fund and Knowledge Fund

★202 1 Why did the fund fall?