[quote]tedro wrote:
[quote]Headhunter wrote:
Averaging the PE takes out the extremes.
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I haven’t claimed there is no merit to averaging, comparing the current PE to the historical average definitely has merit. Why didn’t you post that graph?
I’m sure he didn’t make anything up, but since the S&P 500 only dates to 1957 I am curious as to what data was used for the years before then.
I’m talking about the price data. You suggested drawing a line at y=20 and examining the trend. I say I couldn’t care less what happened 120 years ago when the PE10 was >20. There’s no straws to grasp at at all. You are attempting to define a trend based on a data set that has crossed 20 just 8 separate times, and half of those were more than 70 years ago. Without examining any of the other factors that were affecting stock prices at that time that data is nearly worthless in the context of this argument. So again, why would you use PE10 and it’s likelihood to maintain 20 instead of TTM PE and it’s likelihood to maintain 16?
Actually, interestingly enough, if you download the csv and delete everything pre 1957 (to include only the S&P500 as we commonly know it) you’ll find the average PE10 is 19.25 and the standard deviation is a whopping 7.86. What do you think the significance is when the difference between the average and current value is about half of the standard deviation? (Serious question) I’d say your relationship is likely extremely weak, but by all means, prove me wrong with a trendline that shows a decent r^2.
And weren’t you calling for it to fall further at that time? I’ve made excellent money the last two years, well over the market in fact.
There’s a wide spectrum between going long and calling for a devastating crash. Even in the realm of ‘longs’ there is quite a variance.
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If you think that this market is a buy, with the PE I showed you, with the 10 year yield this low, with div yields similar to the 1960’s…well, buy with both hands. Push the PE to 25, 30, 35.
PE10 of 19.25, sigma = 7.86. Okay, so the market is a hair under one std dev above the mean, using your current data. Even using YOUR numbers, you’re buying? My numbers scream ‘Sell’, your numbers say ‘Sell’.
Your data are skewed anyway; earnings ‘growth’ for the past 20 years or so is from the financials (ie leverage). No way that continues; there’s no one left to take on debt load.
Yep, crash coming.