alas, the market behaves in strange ways. it does not always have the same PE when rates are X and inflation is Y. but i think history is a guidepost not to be dismissed for providing us with a range of values.
Yes - a range. The .pdf you provided from Comstockfunds.com did illustrate that each trough has its own unique 'range' - just as each peak does.
i certainly don't think the market HAS to go to any particular number, though i do think there are a couple basic points worth remembering:
* we were in a bubble
* the bubble ended
Yup. Mix in the business cycle chart as well as now the spice of war to that bubble and it is one heck of a pot of stew to have to eat. Almost like the bottomless pot of stew that never runs out.
and based on looking at 40 past bubbles throughout history, Grantham and his associates found that they ALL gave back the entirety of their speculative gains.
now that doesn't mean that the market MUST go to a PE of 7 or whatever and become extremely undervalued (though that is a possibility); however, for my personal purposes (i don't have clients who can fire me for tracking error), i find it reasonable to assume that the market will correct to at least its historical means.
Don't laugh, but it's too bad those S&P estimates for 2002 of $55 are most likely too high. If they had been accurate, then last week's S&P dip to 944.75 would have provided a forward estimated P/E of 17.17. Although things were tough enough, the attack on the WTC and Pentagon have analysts slashing the S&P earnings for this year to levels that certainly don't give rise to saying the S&P has reached historical means in terms of a trailing PE ratio.
Prudential had an analyst cut his year end target for the S&P to 950 last week and 1200 by year end 2002:
biz.yahoo.com
i fully acknowledge that this might be the first popped bubble in history that only sort of deflates, but then maintains a valuation some 50% higher than historical norms forever. but i doubt that will come to pass.
True.
good points. again, i find it useful to look at a number of these factors and understand that we can establish no more than a range. i do not really expect them to hit historical lows this time 'round (e.g., PE of 6 on the market), but i would be surprised if the market PE, for example does not fall to its norm (say at least 17) over the next decade.
I'll go with you on that notion with the understanding we are talking about thousands of equities and the average mean for all. Slight premiums will still be given to dominant category winners as well as certain sectors during business cycle points. The question remains if price will drop to match historical multiples or if price will trend while earnings catch up - or a combination of the two processes takes place going forward.
Of course, gorilla gaming never has been or probably ever will be 'value investing' such as Jeremy Grantham advocates. Although that interview he did for Barron's stated he began buying Intel and Microsoft for his large cap portfolio in March of this year. I would be curious if he ever owned those equities before (Intel since 1971 or Microsoft since 1986)?
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