Rich McDonald: PE Ratios and FTSE vs S&P Explained

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The average FTSE 100 share trades at roughly 14 times earnings. The average S&P 500 share trades at roughly 24. One current market darling, Rich McDonald says, is running at around 600 times earnings. In this Money Moments clip, the former Credit Suisse Head of Emerging Markets explains what those numbers actually mean and why they matter more than the share price itself.

Rich McDonald is back on the show, but this time for a short, focused clip rather than the full sit-down. He spent years running money at Credit Suisse before moving into hedge funds, and he now presents Trade Live with IG. What he’s talking about here is narrower than a “will the market crash” conversation: it’s about how to actually read a share price.

I wanted to pull this section out on its own because it answers a question I get asked constantly. Why does everyone say the FTSE looks cheap next to America? And how do you tell if a stock is genuinely good value or just riding hype? Rich has a simple way of explaining both.

We use a coffee shop and a pile of bricks to get there. Stick with it, it works.

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Key takeaways

The FTSE 100 trades at around 14 times earnings versus roughly 24 for the S&P 500, but that gap reflects different companies, not a simple “cheap vs expensive” call.
A PE ratio tells you how many years of current profit you’re paying for when you buy a share, from around 7 for BP to over 100 for Tesla in this conversation.
Rich reviews his portfolio allocation every six months, the same way you’d book a dentist checkup, rather than reacting to every headline.
Share price alone means nothing. A stock that “looks cheap” after a 25% drop can be exactly as expensive if earnings dropped by the same amount.
Before buying into hype, like the pub tip that’s already doubled twice, Rich checks the PE ratio first. Palantir was trading at around 600 times earnings at the time of recording.

Timestamps

[00:19] FTSE 100 vs S&P 500: the Starbucks and Costa comparison
[01:30] Why UK companies and funds are buying back cheap stakes
[01:41] Do a six-monthly portfolio “checkup”
[04:49] What a share actually is, and where the word comes from
[07:53] PE ratio explained with the brick analogy
[09:51] Why share price alone is meaningless
[10:53] Spotting hype: the Palantir pub-tip test

FTSE 100 vs S&P 500: why the "cheaper" market isn't so simple

Rich opens with a comparison he uses a lot: the FTSE 100 and the S&P 500 are like a Costa Coffee and a Starbucks sitting next to each other. One charges £3.50 for a coffee, the other £12. Same drink, different price, but not really the same coffee at all, because they’re different companies with different growth profiles.

That’s the trap with headline comparisons between UK and US shares. The FTSE looking “cheap” isn’t automatically a buy signal. It reflects genuinely different businesses, different sectors, and different growth expectations. Rich points to funds buying multi-billion-pound stakes in companies like BP, and Unilever selling its ice cream division, as signs that value investors are already circling the UK market in 2025.

If you want to actually put trackers and index exposure into practice rather than just compare headline valuations, our guide to <a href=”https://upthegains.co.uk/blog/how-to-invest-in-the-ftse-100″>investing in the FTSE 100</a> walks through how UK index exposure actually works.

The point isn’t “UK good, US bad”. It’s that relative valuation only makes sense once you understand what’s driving the price. Which brings Rich to the number that matters more than either headline: the PE ratio.

The PE ratio explained: how many years are you paying for?

Rich’s favourite explainer here is bricks. Each year of a company’s earnings is one brick. The share price is just a stack of those bricks on top of each other. The FTSE average is 14 bricks, meaning you’re paying for roughly 14 years of today’s profits. The S&P 500 average is 24. BP, at the time of recording, was around 7. Tesla was “over a hundred years”, in Rich’s words, before you get your money back through earnings alone.

That’s the PE ratio (price-to-earnings): the current share price divided by earnings per share, expressed as a multiple of years. It’s the standard starting point for anyone trying to work out whether a stock is actually good value, not just cheap or expensive on the surface.

Crucially, Rich points out that a falling share price doesn’t automatically mean a stock got cheaper. If NVIDIA drops from $120 to $90 a share but earnings also fall 25%, it’s exactly as expensive as before, just like a £4 coffee still costing the same share of your wage after a 25% pay rise. If you’re building out a first stock pick using this kind of logic, our <a href=”https://upthegains.co.uk/how-to-pick-stocks”>guide to picking a stock</a> covers the practical steps.

Do a portfolio checkup every six months

Rich’s other habit is treating portfolio reviews like a dental checkup: booked every six months, not triggered by news. He runs through his own split as an example: 20% S&P 500, 20% gold, 10% FTSE, 5% India, checking whether anything looks overpriced or newly attractive.

This matters more for passive investors who feel like the “next step” beyond a single tracker is complicated. Rich’s answer is that it doesn’t need to be dramatic. A regular, scheduled look at your allocation, rather than reacting to every market move, is enough to catch when you’re overexposed to one region or theme. If a global tracker feels like the natural next step from a single S&P 500 fund, our <a href=”https://upthegains.co.uk/blog/how-to-invest-in-index-funds-uk”>index funds guide</a> covers how that broader exposure works in practice.

Spotting hype vs fundamentals: the Palantir test

The clip closes on hype. Rich’s example is a stock everyone’s talking about in the pub, one where a mate claims to have doubled their money already. The instinct to pile in is natural, we want to be part of a winning group, but Rich argues that’s exactly when you should check the PE ratio rather than follow the crowd.

At the time of recording, he puts Palantir at around 600 times earnings, which he calls one of the biggest bubbles he’s seen. That doesn’t mean the company is bad, it means the price has run far ahead of current profits. His practical test: if a taxi driver and your own mum are both asking about a stock, that’s a signal to check the fundamentals, not chase the price. Running any hyped pick through a proper checklist before buying beats reacting to a pub tip; our <a href=”https://upthegains.co.uk/investing-checklist”>investing checklist</a> is built for exactly that pause.

Read the full episode transcript

This transcript is auto-generated and lightly edited for readability, it may contain errors.

[0:19] Rich: The relative valuation of the FTSE one hundred to the S P five hundred is like having a Starbucks and a Costa Coffee next to each other. And you go into the Costa Coffee and you you pay £3.50 for a coffee, or you go into the Starbucks and you pay £12 for the same coffee. Right? Now it’s not the same coffee because it’s different companies.

[0:40] Sammie: But if you can see what the point is then.

[0:42] Rich: It’s uh it it’s you know, just be aware of there are other options out there outside this S&P 500. And it’s it’s fun, it’s fun to learn about these things. And you know, wow, okay, maybe the UK it it’s you know, 2025, it is going to beat America. It’s going to be a better performance America. Because at the end of the day, companies and funds are coming in and seeing how cheap it is, and they’re going and buying four billion pound stakes and and BP.

[1:16] Rich: Right?

[1:16] Rich: Saw that last week. Yeah. Crazy. And that’s it. It’s it’s because you can turn around and you can squeeze value. Unilever is about to sell its uh ice cream division. Right? The mining companies are trying to buy each other.

[1:29] Sammie: Yeah, it’s mad.

[1:30] Rich: Yeah.

[1:30] Sammie: They they let the news and the sentiment of political landscapes influence their investing decisions. However, they don’t look at the fundamentals, which is a big part of what you do, right?

[1:41] Rich: Yeah. And I guess the the way that I look at it is okay, you’ve got your portfolio or you’ve got your S&P 500 tracker. Right. That’s your investment. I think you should rethink that and have a look at it, just like you go to the dentist every six months for a checkup, right? You need to do a checkup. Am I in the right thing? Am I um potentially missing out on the huge gains in India? Right? Because I’m all about the the Magnificent Seven of Microsoft Apple. And, you know, are uh European uh is the European Union start going to attack the Magnificent Seven because they’re making too much money and not paying enough tax? So every six months you go and get your check up with a dentist, every six months just check and think, right, I’m 20% S&P 500, I’m 20% gold, I’m 10% FTSE, I’m 5% India. Should I have a little rethink? Yeah. You know, is something looking really expensive or something’s looking like a huge opportunity? Is there a single stock you want to get in there? Do you think that Nike is about to turn around the whole company because Elliott Hill’s come back in and he’s gonna reinvigorate the whole brand? So do you actually want to buy you know 5% of your portfolio and put it into Nike?

[3:03] Sammie: This is where we get very interesting because I agree with you, like you know, but just a sort of on the tracker element, and then we can go a little bit deeper if that’s okay, because I I think it’s important to note that you know there are global trackers. Do you feel like that’s a much better play because that’s still so exposed to US market as it is, however, it could then grab some of those returns from the Indias or UK or Europe?

[3:29] Rich: Yeah, there are there are, and this is the important thing about it’s it’s a tough subject, right? And it’s one that we don’t get taught in schools, and that my my main mission from now on is to improve financial literacy from a school level. And I I did a an internship in a day, you know, for kids that want to actually work in the industry but can’t get into um you know the big banks for internships because maybe they just didn’t go to a a choice school, you know, that the um or from an underprivileged background, right? So it doesn’t mean that you can’t trade, doesn’t mean that you can’t sales trade, right? The wonderful thing about finance, it doesn’t give a shit if you are male, female, black, white, what country you’re from, what upbringing you’ve had, you can make money in the stock market exactly the same, no matter whoever you are.

[4:26] Sammie: So for someone listening to this, then who’s been passively investing and that’s all they do, what’s the next stage for them? Because like a lot of these guys, perhaps in a nine to five, they’ve got kids and like they’re worried about the amount of time it might take for them to actually go a little bit deeper. What’s kind of in the next phase up, do you think, that they can do today that could actually start helping them?

[4:49] Rich: Yeah, it’s it’s getting that sort of uh the grasp of what fundamentals are. Okay. Right? What actually is a stock? What am I buying? And all you’re doing is you’re buying the next 10 years of earnings, and it’s called a share because you’re taking that share of earnings. Yeah. In fact, where the names come from in the first place is is quite a fun story, right? So it’s a share. Some people call it shares, some people call it the stock market. Well, why is that? Well, it’s because we used to build those great ships to go to the Far East, and we’d swap our gold and silver from England. We’d take them over there and swap them for teas and spices and you know, bring them back. But the problem was that one businessman couldn’t fund a ship because it was getting done by pirates, or it was or the weather. So they started to sell shares of the ships, right? So you could go down to the docks and you and you could invest in, you know, a tiny part of one of these ships. But what you had the right to was a share of the stock of teas and spices when it got back, it was sold in the market, and then you got your profit. So it’s the technical term is it’s a share of the company’s stock.

[6:13] Sammie: So cool, isn’t it? Yeah. The Dutch East India Trading Company was the first that did that. I think it was like 1602 or something along those lines. That’s exactly right.

[6:22] Rich: Yeah, 17th century.

[6:23] Sammie: It’s pretty wild when you look back at how that’s sort of graduated up into like companies and the whole like it was Amsterdam, basically, was the big one, and then Jonathan’s coffee house in London. That’s it. Yeah, exactly. And uh, we did uh we did a sort of deep dive on this recently, and I just it was absolutely fascinating the whole journey of how it’s sort of gone from that to smartphone in your hand.

[6:47] Rich: Yeah. It’s insane. And I and I think and that’s what I’m I’m trying to do. So we we’ve just launched a new TV show. Okay, so I’m now the presenter of Trade Live with IG, which is a YouTube show. Which is great, by the way. Love it. Thank you very much. Yeah, it’s brilliant. And we’re we’re trying to make it fun and engaging and provide a community every single morning from 7 30 till 10.30. You can come on and you can ask us questions and we can reply to you right there and then. You can ask us about um investments or stocks, and we can sort of give our um our view on that. If I was, you know, trading that at the moment, maybe you talk about a stock and I actually really like it and I’ll buy it right there and then on the on the screen. Um, so it it’s yeah, it’s it’s providing that community. But the fun thing is the studio is exactly right in the middle of the city where the first um ever stock market was. Love it. So you’re coming out of there every morning seeing the Bank of England and Royal Exchange and everything, yeah.

[7:46] Sammie: So going back to our like next level, the fundamentals, what does that mean?

[7:53] Rich: And and that’s it. How many so we’ve said that um a stock is a representative of of earnings in the future and you want a share of those earnings, you want to be paid out in dividends. How many years of today’s profits do I have to pay to buy one share? Right? So let’s look at a construction company, for example, and if one year’s earnings are one brick, how many bricks do I have to position on top of each other to work out how what the share price is? And that’s all a share price is is it’s a bunch of bricks on top of each other, and that’s one year’s earnings, two years’ earnings, three, four, five. The average for the FTSE is 14. So I have to pay 14, I have to wait 14 years to get my money back if I buy a share today. Right? So in 14 years, I’ve got all my money back. If I buy a share in the S&P 500, I have to wait 24 years to get my money back. And that’s the difference, just down here thinking, if I buy um BP at the moment, I only have to wait seven years. Yeah. Or as Tesla’s like Tesla’s you’ll be dead. It’s uh it’s over a hundred years, you’ve got to wait to get your monies back. So, you know, this is the and of course that’s the earnings of this year of 2025, that’s one brick. But if their earnings double in 2026, then suddenly it goes from 24 bricks to 12 bricks. So it’s learning, you know, about this thing called PE ratio. That’s a good first place to start just to get your head around what does it actually mean when I’m when I’m buying that stock.

[9:44] Sammie: So it’s the price of the stock to the earnings in years, and that’s the ratio, that’s a PE ratio.

[9:51] Rich: Exactly. Yeah, the the the share price. Because a lot of people think if um NVIDIA dropped from $120 a share to $90 a share, they think that’s cheap. It’s irrelevant. Because if the earnings have also dropped 25%, then the share is exactly as expensive as it was when it was 120. Okay, okay. So, you know, back back to that coffee. If you went in to buy a four pound coffee, right, and then you got uh a wage increase by 25%, well now going in to buy a five pound coffee, it’s still the same percentage of your wages. Yeah. So the price doesn’t mean anything, it’s the price relative to the um earnings of the company. Right.

[10:42] Sammie: So PE ratio is a really important factor here. Were there anything else that you look to consider? You’re looking at revenue increases and net profit and debt and things like this as well?

[10:53] Rich: I I would I’d more look at because that’s maybe getting a little bit too technical for somebody just on their starting. I would look at the hype. Okay. Right, and just do a little taste test, like palantir at the moment. Yes, everywhere, everywhere, and everybody’s talking about it. If you’re sitting in the pub and your mate tells you, I’ve just doubled my money on this thing. Yes, right, the natural thing, as humans, we want to be part of a group and we want to be a successful part of a group. So if he’s made 100% on it, I want to get involved, right? I mean, Bitcoin’s built on this whole theory, right? Is I want to be involved in this, so I’m gonna buy it. Is that the right time to go out and buy Palantir after it’s already doubled and doubled and doubled again? If you learn PE ratios, you can see that it’s one of the biggest bubbles of all time in history because it’s at something like 600 times earnings. 600 now. 600. Oh my god. So you gotta be really careful, and and just learning that means that okay, I can go into the pub, and instead of going, oh great, yeah, it’s like a hot tip, yeah, I’ll stick a tenner on that in the 3:10 at Haydock. You know, you go, God, do you realise do you is is now still a good time to own it? Do you think? Do you think you should be taking a little bit of profit there?

[12:19] Sammie: Yeah.

[12:19] Rich: Because it seems like my taxi driver just told about, and my mum just said, Oh, what’s this about Palantir? So maybe it’s time, you know, to reduce your exposure, let’s see.

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Frequently asked questions

What does PE ratio mean when picking stocks?

PE stands for price-to-earnings. It’s the share price divided by earnings per share, shown as a multiple. Rich explains it as “bricks”: each brick is one year of profit, and the PE tells you how many years of earnings you’re paying for. The FTSE average is around 14, the S&P 500 around 24.

Why does the FTSE 100 look cheaper than the S&P 500?

Because FTSE shares trade at a lower average PE ratio, roughly 14 versus 24 for the S&P 500. Rich compares it to a Costa Coffee next to a Starbucks: different prices for what looks similar, but not identical companies. It reflects different sectors and growth expectations, not a straightforward bargain.

How often should I check my portfolio?

Rich reviews his own allocation every six months, comparing it to a routine dentist checkup rather than reacting to news. He checks percentages across regions and assets, for example S&P 500, gold, FTSE, and India, and asks whether anything looks overpriced or newly attractive before making any changes.

Is Palantir overvalued according to Rich McDonald?

At the time of recording, Rich puts Palantir at roughly 600 times earnings, which he describes as one of the biggest bubbles he’s seen. He isn’t saying the business is bad, just that the share price has run far ahead of current profits, which is worth checking before buying into the hype.

Does a falling share price mean a stock is getting cheaper?

Not necessarily. Rich uses NVIDIA as an example: if the price drops 25% but earnings also drop 25%, the stock is exactly as expensive as before. What matters is the price relative to earnings, not the price on its own.

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This video is meant for educational purposes and should not be considered financial advice. When you invest your capital is at risk. Past performance is not a guarantee of future success.

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