Don't invest solely based on P/E

Buy low and sell high. That's how you make money in the market. But taking this motto too literally leads to a lot of misconceptions. Investors often forget that you should look at valuation after exploring a business's fundamentals. Investing solely based on valuations is akin to rolling the dice and expecting returns will materialise. Take the obsession around the valuation metric price-to-earnings or P/E. P/E is calculated by dividing a company's market capitalisation by its last 12-month earnings. And the metric is indeed helpful in gauging if a business is overvalued or undervalued. If a company has a high P/E, chances are market sentiments are driving its price up more than the performance of the underlying busine