The Price/Peak Earnings Ratio: A Different Take on Valuation

With stocks up some 60% off their lows, one of the big questions among investors has involved the market’s current value. Are stocks now overvalued? Or are they still cheap? The issue of valuation is one that can be looked at in a myriad of ways — currently, for example, the 10-year price/earnings ratio pioneered by Robert Shiller shows the S&P 500 to be valued at levels above historic norms. So does the more frequently… Read More

Don’t Be a Bottom-Hunter

The big question in the market these days seems to be, “Have we hit a bottom?” After enduring a bear market that has lasted nearly 18 months and cut the value of the S&P 500 in half, it’s certainly a reasonable question. But in the latest issue of my Validea Hot List newsletter, I explain that now is no time to be sitting on the sidelines trying to wait for a clear, precise bottom. In… Read More

Shiller P/E

Fortune’s Shawn Tully recently looked at the Shiller P/E model (developed by Yale University professor Robert Shiller), which calculates the P/E ratio of the market using ten years worth of earnings (vs. just the earnings of the last 12 months). Currently, the market P/E based on the Shiller model is around 15, which is lower than it’s been in 20 years. The bottom line is the lower the P/E is when you invest the higher… Read More