Historical Trading Range

Ya know how some Wall Street words are arcane? They say one thing, but mean something entirely different?

Well, this is not one of those times. Historical. Trading. Range.

You could say that AT&T has had a historical trading range at a given price, largely because, well, look at its stock chart for the last umpteen years and you can see that it hasn’t really moved. Sort of lived between 30 and 40 bucks a share more or less forever. All the investment gains to AT&T shareholders came through the company paying dividends.

But historical ranges aren’t just about stock prices alone. Like...take a look at the historical trading range of the price-to-earnings ratio of the S&P 500. This chart shows the range of P/E multiples from 1880 to today-ish.

Note that the lion’s share of multiples lived in this band, from about 10 times to about 20 times. This was the range of multiples...and yes, there were outliers...like after the economic hangover, post-World War 2 repair work…as well as where earnings were actually very low, so the price-to-earnings ratio was very high. Like...if a company used to trade for 20 bucks a share and earned a dollar, it might have had in that short period only a dime of earnings…but the stock went down 40% to 12 bucks, and on a dime of earnings that 12 bucks seemed like a huge multiple: 120x. But it was short-lived and gets tossed out when you’d look at a historical range.

"Home, home on the range… where the price-to-earnings ratio plays..."