"I don't think you can compare PE ratios of the NASDAQ to the DOW"
I wasn't suggesting a comparison of p/e's, what I was suggesting was a Linear Regression analysis of, for instance, the aggregate p/e of the compx since Oct. '91, comparing the result to the current aggregate p/e, and from that calculating a value for the index. For example, we might find that such a regression would indicate a mean p/e for the compx over that time of 40, while doing the same for the spx would yield 23. Then all you have to do, for each index individually, is find the current aggregate p/e and divide by the mean historical p/e to get a ratio and then apply that ratio to the current value of the index:
if historical mean p/e = 40
and current mean p/e = 80
then ratio = 40/80
and current index value = 2646
then (40/80)*2646 = 1323
This is a hypothetical example since I have no values for the historical (since Oct. '91) p/e's.
Such an analysis takes into account both the rapid p/e growth of the past 5 years, as well as the slower, and some would say more normal, growth of the first 5 years of the current expansion. I was suggesting that it would be interesting to see the results of such analysis for compx, spx, and the Dow, but each is separate and independent. |
