The two lethal flaws in your favourite investment tool

The price to earnings (P/E) ratio is one of the most widely used investment tools, which allows investors to gauge the value of a company's shares. But the popular ratio has two fatal flaws, writes Bengt Saelensminde.

There are two very important things you need to know as an investor. And both are captured beautifully by one thing - the Price Earnings (P/E) ratio.

It's the simplicity of comparing price to earnings that makes this ratio so powerful. We understand what the ratio represents on a gut level.

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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.

 

He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.

 

Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.