Most Wall Street analysts and investors are comfortable discussing price multiples when describing whether a firm is expensive or cheap. What are some of the drawbacks in using this approach? In 2000 the Dow Jones Industrial Averages had a P/E ratio of near 44x at its peak. In 1973 the DJIA had a P/E ratio near 7x at the trough. What have been the subsequent equity returns for investors for the years following those relative valuations? Lastly, when firms such as eBay or Yahoo in 1999 have P/E ratios above 1,000x what is driving investors to own those securities? What is the risk an investor faces when purchasing a security with a P/E of 5x?