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John Authers: You can’t take the market at face value

By John Authers, Investment Editor

Published: February 8 2008 18:13 | Last updated: February 8 2008 18:13

Are stocks cheap? It is an endless, complicated and unanswerable debate, so let me start by short-circuiting some of the first steps.

It is traditional to value stocks by their price/earnings ratios (the ratio of their current price to the latest year’s earnings), and by comparing earnings yields (the proportion of their earnings to their total market value) to bond yields.

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