I have been contemplating changing the P/E metric in my Scorecard for a while.
I arbitrarily selected 25 and 50 as my thresholds in my initial iteration of the Scorecard.
I thought about reducing those numbers but didn't want to arbitrarily choose again.
Since my whole idea for my investing is to 1) continually improve on the portfolio I have and 2) beat my benchmark of the S&P, my thought is to compare P/E versus portfolio median P/E and S&P 500 P/E. The new scoring is as follows:
- P/E lower than S&P 500 and Portfolio Median, +1
- P/E lower than S&P 500 and higher than Portfolio Median OR P/E higher than S&P 500 and lower than Portfolio Median, +0.5
- All else, 0
I will track and see if this makes sense. I am calculating a rank based off old P/E and new P/E. If a holding is the top with both ranks, it is an obvious buy. If not, I will need to use some discretion to determine which rank to go off of.
I want to trend a little more towards “value” but want to put some rationale behind it.