PV:
Gottfried's chart helps a little:
lowrisk.com
To the extent you want to follow this exercise, I'd concentrate on the years 1976 to 1992, and try to rethink how interest rates moved then, the general mood of the country toward equities (and percentage of Joe SixPack who owned them, either directly (few) or through mutual funds), and then see how that compares with our internet-linked, low-commission, self-directed IRA, 401K economic landscape AND the lowest Fed funds rate in 40 or 50 years.
I think on the basis of that (appetite for and distribution of equities, and low interest rates) current p/e's (to the extent you trust something like an S&P p/e) do not need to fall much farther to be fair valued.
The investor's real question, given $10,000 to allocate, is does he put it into money markets for 1.5% return, short treasurys for 2.5%, 10 year treasurys for 4.5%, a "safe" dividend yielding stock for 4-5% plus/minus whatever, or pay 25 X trailing earnings for a shot at the American dream? Or await Monday's carnage/pop for another shot at the roulette wheel?
Kb |
