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Gold/Mining/Energy : Gold Price Monitor
GDXJ 96.90+0.9%Nov 18 4:00 PM EST
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To: Richnorth who wrote (8097)3/6/1998 11:21:00 AM
From: philv  Read Replies (2) of 116762
 
Stockmarket overvaluation: reposted from Kitco

Date: Fri Mar 06 1998 10:20
Suspicious (Real Market Value based on Historical averages) ID#285121:

There seems to be some argument among investors as to whether the stock market is overvalued or not. Following are some historical facts. A Dow Jones Industrial average of 8000 was used as today's price in the figures below.
The historical average price of the stock market is 48% of the Gross Domestic product. Today's market price is 118% of GDP. At 48% the Dow would be at 3250 today.
The historical average dividend yield of the S&P500 is 4.5%. The average dividend yield is below 1.5%. The Dow adjusted accordingly would be at 2600.
The historical average Price to earning ratio is approx. 11-1. Today the average P/E is almost 24-1. Adjusted to the average P/E this would put the Dow at 3667.
The historical average of the price to book ratio is just under 2-1. Today's average P/B is 6-1. Adjusted to the average this would mean the Dow should be at 2667.
Lets use the average of the four adjusted figures above and arrive at what might be a fair market value of the Dow. That figure would be 3045.0 Based on historical averages, with the Dow at 8500 the market is now overvalued by approximately 180%. If anyone can dispute these figures please post accordingly. Surely I have made some terrible mistake.

Return to Kitco Homepage

If scandal, international monetary crisis, or even war can't affect this market, perhaps profits can.

Phil
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