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Strategies & Market Trends : Value Investing

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From: E_K_S	1/7/2011 9:29:40 AM
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Ever heard of the Rule of 20 for a "Fair Value" of the S&P? They say that if you add the multiple to the expected inflation rate the total should equal 20 to be "fairly valued" by historical standards. THE “RULE OF 20” EQUITY VALUATION METHOD news-to-use.com The Rule of 20 simply states that fair PE is 20 minus inflation with the total of PE plus inflation generally fluctuating between 15 and 25. According to the consensus view on inflation, using the Rule of 20, there is still room for PE expansion. In other words, the market is still undervalued and could see PE expansion unless inflation expectations increase substantially from current levels. EKS

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