27 Aug 2015

Are Stocks Cheap Now?

I thought it would be interesting to see how the market correction this month impacted long-term market valuations, most notably, the Shiller PE ratio.  Unlike a standard PE ratio, the Shiller PE ratio compares the current market price to the average inflation-adjusted earnings for the previous 10-years. The chart below shows the Shiller PE ratio (in blue) back to 1926.  The solid orange line depicts the average Shiller PE ratio… Read More

By Tags:
18 Aug 2015

The Outlook for Stock Returns

Last week, I wrote that I was wincing at the valuation for the US stock market (click here for the article) and said that I thought that returns in the coming years would be lower than the historic averages. Importantly, I said that returns could be low without a crash in the form of lower average returns.  I wish I had also said that even though the average return might be lower,… Read More

13 Aug 2015

Wincing at US Market Valuations

One of the things that I have heard many times over the years is that lower interest rates equal higher equity valuations.  To be honest, I always struggled to understand why that relationship would be dogmatic. In the past, I reconciled the idea by thinking about the price-earnings ratio (PE-ratio) as an earnings yield, which is simply the inverse of the PE-ratio.  If the PE-ratio is 20, then the earnings… Read More

By Tags:
19 May 2015

Dow 36,000

Seeing the DJIA at 18,000 reminds me of a book published at the peak of the internet bubble titled, ‘Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market,’ by James Glassman and Kevin Hassett. At that point, the DJIA was about 11,000, so it only had to little more than triple to hit the 36,000 mark.  I had graduated from college in 1995 when… Read More