Draco Capital Management

It's almost axiomatic in this business that investors should buy stocks when they're cheap and avoid them when they're expensive. All of us accept this principle without question, even if we're hardcore technical analysts. But let me run you through a few charts that may raise some questions about your blind faith in the Price-to-Earnings multiple, the most popular way of measuring value. What this first chart does is take a snapshot of the market's P/E ratio on January 1, 1900. Then it fast-forwards three years to see how much money you made or lost if you made an investment in the Dow.