VBR higher p/e than VTI & lower growth

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investorguy1
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VBR higher p/e than VTI & lower growth

Postby investorguy1 » Tue Dec 20, 2016 9:14 pm

Is this a bad time to tilt to SCV?

VBR p/e 24.4
VTI p/e 24

VBR earnings growth 8.2
VTI growth rate 6.7

Small Cap has a growth rate of 9.4 but a whopping PE of 30!

livesoft
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Re: VBR higher p/e than VTI & lower growth

Postby livesoft » Tue Dec 20, 2016 9:17 pm

Who knows? Can you predict the future? I sure cannot.

I will say that VBR is a very large percentage my portfolio, but I stopped rebalancing out of it in order to ride the upward momentum. I'm not buying anymore nor am I buying back the shares I recently sold.

I will continue to sell VTI to rebalance.
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Theoretical
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Re: VBR higher p/e than VTI & lower growth

Postby Theoretical » Tue Dec 20, 2016 9:27 pm

Price to sales, price to book, and price to cash flow are all better for small value than total market.

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investorguy1
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Re: VBR higher p/e than VTI & lower growth

Postby investorguy1 » Tue Dec 20, 2016 10:04 pm

So I'm the only one who is surprised by the p/e? :happy

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JoMoney
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Re: VBR higher p/e than VTI & lower growth

Postby JoMoney » Wed Dec 21, 2016 6:51 am

investorguy1 wrote:So I'm the only one who is surprised by the p/e? :happy

What may be really surprising to you, is how bad the earnings are depending on how they're aggregated. The way Vanguard computes the P/E ratio for a mutual fund are a bit different than how an index may calculate it. The Index itself may divide the aggregate of the share prices by the aggregate of all the earnings together. A mutual fund might average it by the weighted amount of individual companies, and may disregard companies with negative earnings or set extremely high or low earnings to some arbitrary cap.

For example, the broad Russell 2000 Index has not even had positive earnings over the past year. The trailing 12 months P/E is being reported as "NIL" by the WSJ
http://online.wsj.com/mdc/public/page/2 ... yield.html
But the way Vanguard calculates P/E for the Russell 2000 Index Fund it has a trailing P/E of 35.1
https://personal.vanguard.com/us/funds/ ... =INT#tab=2

And aggregated/calculated still a different way, would be the way iShares does it for there funds, giving the Russell 2000 Index Fund a P/E of 21.82
https://www.ishares.com/us/products/239710/IWM
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: VBR higher p/e than VTI & lower growth

Postby garlandwhizzer » Wed Dec 21, 2016 12:30 pm

Everything, VBR, VTI, VOO, etc., in the US seems generously valued relative to historical norms. Switching from one to another at this point may not make a lot of difference in short or even perhaps intermediate term returns. Had you switched a year ago into VBR after long years of its underperformance, you would have reaped outsized gains relative to VTI. Those gains however have adjusted valuations, the SCV low fruit has been picked at present. The reason to switch now is not to harvest short term reward but (if you fully believe in the SCV premium) to position yourself for expected long term outperformance with a long term buy and hold strategy. People tend to skate where the puck was, moving into asset classes that have recently outperformed, but that fact itself sometimes diminishes the very thing they seek in the short term at least.

Garland Whizzer

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David Jay
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Re: VBR higher p/e than VTI & lower growth

Postby David Jay » Wed Dec 21, 2016 12:52 pm

garlandwhizzer wrote:People tend to skate where the puck was, moving into asset classes that have recently outperformed...


+1
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Theoretical
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Re: VBR higher p/e than VTI & lower growth

Postby Theoretical » Wed Dec 21, 2016 12:55 pm

Midcaps are definitely that way over the last few years.

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investorguy1
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Re: VBR higher p/e than VTI & lower growth

Postby investorguy1 » Wed Dec 21, 2016 1:14 pm

David Jay wrote:
garlandwhizzer wrote:People tend to skate where the puck was, moving into asset classes that have recently outperformed...


+1


I'm not trying to skate I just find it odd that small cap value and total market have the same p/e. Jo money might be on the money.

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investorguy1
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Re: VBR higher p/e than VTI & lower growth

Postby investorguy1 » Wed Dec 21, 2016 1:46 pm

JoMoney wrote:
investorguy1 wrote:So I'm the only one who is surprised by the p/e? :happy

What may be really surprising to you, is how bad the earnings are depending on how they're aggregated. The way Vanguard computes the P/E ratio for a mutual fund are a bit different than how an index may calculate it. The Index itself may divide the aggregate of the share prices by the aggregate of all the earnings together. A mutual fund might average it by the weighted amount of individual companies, and may disregard companies with negative earnings or set extremely high or low earnings to some arbitrary cap.

For example, the broad Russell 2000 Index has not even had positive earnings over the past year. The trailing 12 months P/E is being reported as "NIL" by the WSJ
http://online.wsj.com/mdc/public/page/2 ... yield.html
But the way Vanguard calculates P/E for the Russell 2000 Index Fund it has a trailing P/E of 35.1
https://personal.vanguard.com/us/funds/ ... =INT#tab=2

And aggregated/calculated still a different way, would be the way iShares does it for there funds, giving the Russell 2000 Index Fund a P/E of 21.82
https://www.ishares.com/us/products/239710/IWM


Crazy stuff I thought the SEC would regulate this kind of stuff. So where is the best place to get good information? Does this mean that VBR really probably has a lower PE than VTI and Vanguard just has it wrong?

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sunnywindy
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Re: VBR higher p/e than VTI & lower growth

Postby sunnywindy » Wed Dec 21, 2016 1:55 pm

investorguy1 wrote:
JoMoney wrote:
investorguy1 wrote:So I'm the only one who is surprised by the p/e? :happy

What may be really surprising to you, is how bad the earnings are depending on how they're aggregated. The way Vanguard computes the P/E ratio for a mutual fund are a bit different than how an index may calculate it. The Index itself may divide the aggregate of the share prices by the aggregate of all the earnings together. A mutual fund might average it by the weighted amount of individual companies, and may disregard companies with negative earnings or set extremely high or low earnings to some arbitrary cap.

For example, the broad Russell 2000 Index has not even had positive earnings over the past year. The trailing 12 months P/E is being reported as "NIL" by the WSJ
http://online.wsj.com/mdc/public/page/2 ... yield.html
But the way Vanguard calculates P/E for the Russell 2000 Index Fund it has a trailing P/E of 35.1
https://personal.vanguard.com/us/funds/ ... =INT#tab=2

And aggregated/calculated still a different way, would be the way iShares does it for there funds, giving the Russell 2000 Index Fund a P/E of 21.82
https://www.ishares.com/us/products/239710/IWM


Crazy stuff I thought the SEC would regulate this kind of stuff. So where is the best place to get good information? Does this mean that VBR really probably has a lower PE than VTI and Vanguard just has it wrong?


I would use Morningstar to compare apples to apples (although sometimes I think their data is incorrect!).
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JoMoney
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Re: VBR higher p/e than VTI & lower growth

Postby JoMoney » Wed Dec 21, 2016 2:51 pm

investorguy1 wrote:...

Crazy stuff I thought the SEC would regulate this kind of stuff. So where is the best place to get good information? Does this mean that VBR really probably has a lower PE than VTI and Vanguard just has it wrong?

No, not wrong... just that there are different ways of calculating earnings for an aggregate of stocks, and different ways for handling negative earnings, and if you're not comparing apples to apples you may not be looking at the same thing.

Accounting rules for individual companies and how they tabulate their earnings are different today then they were 20 years ago. That doesn't make current accounting rules "wrong", nor the ones from years past... but you should understand that they're different.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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billyv
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Re: VBR higher p/e than VTI & lower growth

Postby billyv » Wed Dec 21, 2016 3:42 pm

There could be several reasons why VBR's p/e ratios are a bit elevated at the moment.

First, we've had a big run-up in small and mid-cap stocks since the election. Second, I think there's a case to be made that small-caps, in particular, may do well in the near future, especially in a strong-dollar, pro-business environment. It's possible that at least some of those future earnings are already reflected in current stock prices. Finally, as many posters have pointed out over the years, VBR tends to skew toward the larger, more established end of the small-cap spectrum, making it more of a small/mid blend than a true small-cap fund.

That said, I'm keeping my stake in VBR (as well as a smaller stake in VIOO) for now, since I do think small caps stand to benefit the most from the mix of tax cuts, gov't spending and deregulation that are likely headed our way. And besides, small is beautiful. 8-)

boglerdude
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Re: VBR higher p/e than VTI & lower growth

Postby boglerdude » Sun Jan 15, 2017 10:57 pm

Will VBR's PE go down when it rebalances back into value by selling what got expensive? When is that?

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BlueEars
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Re: VBR higher p/e than VTI & lower growth

Postby BlueEars » Mon Jan 16, 2017 11:58 am

Here is some PE data I have periodically lifted from the Vanguard site:

Image

The VBR pe is only about 10% above the May 2011 level. Also bonds are quite a bit lower yields (higher bond PE's).

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JoMoney
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Re: VBR higher p/e than VTI & lower growth

Postby JoMoney » Tue Jan 17, 2017 12:17 am

BlueEars wrote:Here is some PE data I have periodically lifted from the Vanguard site:
...

The VBR pe is only about 10% above the May 2011 level. Also bonds are quite a bit lower yields (higher bond PE's).

Consider how much higher it is relative to the levels before the SCV and factor fund hype over the past decade:
June 30, 1999
Small-Cap Value Index P/E: 15.7x
TSM P/E: 27.8x

June 30, 2001
Small-Cap Value Index P/E: 17.6x
TSM P/E: 27.3x

June 30, 2003
Small-Cap Value Index P/E: 17.2x
TSM P/E: 21.8x

June 30, 2005
Small-Cap Value Index P/E: 19.0x
TSM P/E: 19.1x

...
as of 11/30/2016
Small-Cap Value Index P/E: 24.4x
TSM P/E: 24.0x

http://johncbogle.com/wordpress/wp-cont ... 0op-ed.pdf
...to the extent that investors are persuaded by these data, the premiums offered by such stocks may well now
have been "arbitraged away" in the stock market, as price-earnings multiples have become extremely compressed.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Theoretical
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Re: VBR higher p/e than VTI & lower growth

Postby Theoretical » Tue Jan 17, 2017 3:17 am

It's a different story if you look at cash flows, sales or book. There, there's a pretty significant difference between the large caps and the Small Value. Midcaps on the other hand, are richly valued except among the falling knives.

selters
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Re: VBR higher p/e than VTI & lower growth

Postby selters » Tue Jan 17, 2017 4:41 am

But VBR P/E Fwd is lower than VTI P/E Fwd, right?

But how reliable are forward P/Es anyway? That is, how reliable are consensus estimates of earnings 12 months from now?


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