What the experts say

Is P/E passé?

The price/earnings ratio has long been the go-to gauge for valuing both the stock market and individual stocks, but it’s losing credibility, said Ben Levisohn in The Wall Street Journal. Why the change of heart? “In short, the ‘e’ can’t be trusted”—2011 earnings estimates are far too high to be reliable, according to Barry Knapp, head of U.S. equity portfolio strategy at Barclays Capital in New York. Some investors are turning to other measures, such as enterprise value and free cash flow. Others are simply focusing more on broader economic numbers because, as Jeffrey Sica of Sica Wealth Management puts it, individual company valuations “are virtually irrelevant in today’s economic climate.”

A safer play on mergers

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Despite the recession, corporations are collectively sitting on a “near-record” $1 trillion in cash, said John Waggoner in USA Today. How can you get your hands on some of that? “Invest in value funds.” All that excess cash is sparking a buying spree—with the most likely prospects for pickups being companies with beaten-down value stocks. Specialized merger funds, such as the Merger Fund or Gabelli ABC, are one way to piggyback on the trend. But merger targets can see their stocks spike and then sink as negotiations drag on. Often, simply buying value funds can be safer and easier, since their holdings have already been hammered. Still, “don’t invest if you’re not willing to take some lumps from time to time.”

Love you, hate your debt

When Allison Brooke Eastman’s fiancé learned that the San Francisco X-ray technician had a whopping $170,000 student loan debt, he called the whole thing off, said Ron Lieber in The New York Times. “It should come as no surprise that debt can bust up engagements,” but the issue looms larger when many mortgages are under water and unemployment is rampant. Potential mates have to carefully consider when to come clean about their financial baggage—or their aversion to debt, for that matter. There’s no hard and fast rule for when to have the talk, says Sheila G. Riesel, a matrimonial lawyer in New York. “But I wouldn’t wait until you were signing leases for apartments or picking out engagement rings,” she says.