Absolutely agree but finding the right PE is an art that no one has excelled in. I had mentioned this in my essay titled Sensex@2010 – Thoughts and Strategies that it is far easier to get carried away by the high PE companies.

Thanks basantji for creating this new thread. Nice article Sensex@2010 as usual :) though my thought process differs from opinions mentioned there.

  I think at any point of time, one should look at a company with fresh point of view irrespective of its history or whether one is already invested and made money out of it. If one is convinced of buying afresh compared to other choices available, then it may be justified.
 
  I think there are better risk-reward ratio companies in the market. We just need to look harder. I like  a  "Magic Formula" (Joel Greenblatt) shortlist to start with or even the worse performing companies in the larger TED list seem to be good to start with. Looking at the TED XI, somehow I feel, being the value investors we are, we need a better list.
To me, it appears to be biased towards the return it has already given than a better future risk-reward ratio.

  This is not to say that PRIL is a bad choice. I generally discard a company with high pe from further analysis. But given your points, I will take a deeper look.
  "PRIL being at similar PE for last 3 years", in my opinion, is not a good argument from value perspective.

Right. CAUSEs arising in future leading to EFFECTs on prices are hard to guess. A high pe stock is a larger bet on the CAUSEs to be positive and therefore inherently more risky. Stock prices over long term are slaves of earnings, that we all know. Multiples paid of a decent estimate (say last 3 years of average earning) certainly has to do something with the inherent risk in purchase.

WHiule your apprensions on a PE are justified what would you tell someone in China earlier this year when their amrket was at 30 times? It is now at 55 times.