Value Investing: Why Billionaires Ignore the P/E Ratio

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Value Investing: Why the P/E Ratio Tells You Almost Nothing

A share is a residual claim: in a bankruptcy you are paid after the tax authority, the banks, the bondholders, the suppliers and the staff. You accept that position in exchange for unlimited upside — which means the only sane way to price it is by the cash it can actually pay you, not by an accounting figure. Free cash flow yield is that number, and it has to clear a hurdle: the risk-free rate plus the equity risk premium. On 1 January 2026 that hurdle was roughly 8.4%. By July the ten-year Treasury alone had risen from about 4.2% to about 4.6% — so the hurdle moved, and anyone still using January's number is pricing with a stale one.

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