Sentences with phrase «market valuation measures»

In any event, the problem for investors is that whatever increment we could possibly observe in GDP growth pales in comparison to the fact that the most historically reliable market valuation measures are far more than double their historical norms.

Historically, we find that the least reliable market valuation measures are the Fed Model, the raw price / earnings ratio, and the forward operating P / E.

So if we look at a range of market valuation measures, whether it's Shiller CAPE, whether its price - to - book, whether it's price - to - trailing earnings, price - to - peak earnings, when we look at these measures, they look like they're in the, what we would call, the 10th decile, meaning generally, valuations are cheaper 90 % of the time.

Not exact matches

When valuations exceeded even 12 times normalized earnings (on our most comprehensive measure discussed above), seemingly «favorable» market action was followed by profound losses averaging -69.8 % on an annualized basis (generally reflecting a few weeks of vertical losses until enough damage was done to kick the market action measures negative).

Moderate interest rates were associated with a whole range of subsequent returns over the following decade, and we know that those outcomes were 90 % correlated with the level of valuations at the beginning of those periods (on reliable measures such as market cap / GDP, price / revenue, Tobin's Q, the margin - adjusted Shiller P / E, and others we've presented over time - see Ockham's Razor and the Market Cmarket cap / GDP, price / revenue, Tobin's Q, the margin - adjusted Shiller P / E, and others we've presented over time - see Ockham's Razor and the Market CMarket Cycle).

Along with the steepest equity valuations in U.S. history outside of 1929 and 2000 (on measures that are actually reliably correlated with subsequent market returns), private and public debt burdens have reached the most extreme levels in history.

As always, the strongest prospective market return / risk profile is associated with a material retreat in valuations followed by an early improvement in broad measures of market internals.

The results below are specific to methods we actually use, but I expect that they could be broadly replicated using any basic combination of valuations (say, Shiller PEs), and market action (say, moving averages or breadth measures).

«On the other hand, using the same essential measures of valuation and market action, but including periods of major economic dislocation into the dataset, produces average return / risk inferences that are substantially less favorable.

As a result, starting valuations, on historically reliable measures, are 90 % correlated with actual subsequent 10 - year total market returns.

As always, the best opportunities are likely to emerge when a material retreat in valuations is joined by an early improvement in our measures of market action (which, following our stress - testing earlier in this half - cycle, are robust to every market cycle we've observed across history).

At Berkshire Hathaway's recent annual shareholders meeting, an investor asked Buffett about the relevance of two popular measures of stock market value: 1) market cap - to - GDP, which Buffett once heralded as «probably the best single measure of where valuations stand at any given moment» and 2) the cyclically - adjusted price - earnings ratio (CAPE), which was made famous by Nobel prize winner Robert Shiller and was seen as accurately predicting the dot - com bubble and the housing bubble.

Market - Implied Duration of Growth (Growth Appreciation Period) measures the number of years of future profit growth required to justify the current valuation of the stock.

Presently, wicked valuations are coupled with still - unfavorable market internals on our measures, and have now been joined by the most extreme «overvalued, overbought, overbullish» syndrome of conditions we identify.

The economic gains and market returns that emerged during the Reagan Administration began from a starting point of 10.8 % unemployment, a current account surplus, and market valuations that - on the most historically reliable measures - were less than one - quarter of present levels.

At this point, obscene equity valuations are already baked in the cake on valuation measures that are reliably correlated with actual subsequent stock market returns.

With the S&P 500 within about 8 % of its highest level in history, with historically reliable valuation measures at obscene levels, implying near - zero 10 - 12 year S&P 500 nominal total returns; with an extended period of extreme overvalued, overbought, overbullish conditions replaced by deterioration in market internals that signal a clear shift toward risk - aversion among investors; with credit spreads on low - grade debt blowing out to multi-year highs; and with leading economic measures deteriorating rapidly, we continue to classify market conditions within the most hostile return / risk profile we identify — a classification that has been observed in only about 9 % of history.

Among the valuation measures most tightly correlated across history with actual subsequent S&P 500 total returns, the ratio of market capitalization to corporate gross value added would now have to retreat by nearly 60 % simply to reach its pre-bubble average.

We've long argued, and continue to assert, that the most historically reliable measures of market valuation are far beyond double their historical norms.

The essential thing to understand about valuations is that while they are highly reliable measures of prospective long - term market returns (particularly over 10 - 12 year horizons), and of potential downside risk over the completion of any market cycle, valuations are also nearly useless over shorter segments of the market cycle.

Historically - reliable valuation measures are remarkably useful in projecting long - term and full - cycle market outcomes, but the behavior of the market over shorter segments of the market cycle is driven by the psychological inclination of investors toward speculation or risk - aversion.

It doesn't matter whether one looks at basic measures such as median valuation multiples over the past (bull market) decade, or whether one uses a more complex discounted cash flow model.

Second, our own admitted difficulty in the advancing period since 2009 did not reflect a shortfall in either our measures of valuation or our measures of market internals.

These measures include the S&P 500 price / revenue ratio, the Margin - Adjusted CAPE (our more reliable variant of Robert Shiller's cyclically - adjusted P / E), and MarketCap / GVA — the ratio of nonfinancial market capitalization to corporate gross value - added, including estimated foreign revenues — which is easily the most reliable valuation measure we've ever created or tested, among scores of alternatives.

Last week, the U.S. equity market climbed to the steepest valuation level in history, based on the valuation measures most highly correlated with actual subsequent S&P 500 10 - 12 year total returns, across a century of market cycles.

The Market Climate remains on a Crash Warning, characterized by extremely unfavorable valuations, unfavorable trend uniformity, and hostile yield trends, particularly long - term bond yields and various measures of risk premiums.

While we prefer to compare market capitalization with corporate gross value added, including estimated foreign revenues, the following chart provides a longer historical perspective of where reliable valuation measures stand at present.

For instance, as measured by price - to - earnings (P / E) and price - to - book (P / B) valuations metrics, EM stocks continue to trade at a roughly 30 % discount to the broader global equity market (source: MSCI, as of 3/31/2015).

Recent cycles provide no evidence of deterioration in the relationship between reliable valuation measures (particularly those that aren't highly sensitive to fluctuations in profit margins) and actual subsequent market returns.

Again, the problem is that market valuations are presently more than double those norms on the most historically reliable measures.

Don't criticize historically reliable valuation measures that have maintained the same tight relationship with actual subsequent 10 - 12 year market returns that they've demonstrated across a century of history.

The recent market cycle has extended much further, but it has also brought the most historically reliable measures of valuation to obscene levels.

Despite my admitted stumble in the half - cycle since 2009, it's perplexing that the equity market is at the second greatest valuation extreme in the history of the United States, on what are objectively the most durably reliable valuation measures available, but it has somehow become an affront to suggest that this will not end well.

Our actual expectation is that the completion of the current market cycle is likely to wipe out the entire total return of the S&P 500 — in excess of Treasury bill returns — all the way back to roughly October 1997; an outcome that would require a market retreat no larger than it experienced in the past two cycles, and that would not even carry historically reliable valuation measures to materially undervalued levels (see When You Look Back On This Moment In History).

Even within my dividend portfolio, I combine DCA (with automatic DRIP), and market timing strategies (by using PE as a valuation measure in deciding whether to add to existing positions or buy into new ones).

In our 1Q2015 letter, we noted that equity - market valuations were at dangerous levels by three different measures: the CAPE ratio, the Q - ratio, and the Buffett indicator, which are discussed at length in our last letter.

Wall Street analysts love to measure the stock market based on various price metrics, performance metrics and valuation metrics.

One way to assess broad market value and expected returns is to look at a relative valuation measure and track subsequent market returns.

As usual, I don't place too much emphasis on this sort of forecast, but to the extent that I make any comments at all about the outlook for 2006, the bottom line is this: 1) we can't rule out modest potential for stock appreciation, which would require the maintenance or expansion of already high price / peak earnings multiples; 2) we also should recognize an uncomfortably large potential for market losses, particularly given that the current bull market has now outlived the median and average bull, yet at higher valuations than most bulls have achieved, a flat yield curve with rising interest rate pressures, an extended period of internal divergence as measured by breadth and other market action, and complacency at best and excessive bullishness at worst, as measured by various sentiment indicators; 3) there is a moderate but still not compelling risk of an oncoming recession, which would become more of a factor if we observe a substantial widening of credit spreads and weakness in the ISM Purchasing Managers Index in the months ahead, and; 4) there remains substantial potential for U.S. dollar weakness coupled with «unexpectedly» persistent inflation pressures, particularly if we do observe economic weakness.

I have several models that take the measure of equity valuations, and they all reach the same conclusion — this market is stretched.

Hump # 1 was a massive speculative surge that separated the stock market from all reasonable measures of fair valuation.

Our measures of market action are still broadly unfavorable, and allowing even the mildest adjustment for profit margins and the position of earnings in the economic cycle, valuations remain rich.

As Graham and Dodd wrote in Security Analysis (1934), referring to the final advance that led to the 1929 market peak, the reason investors shifted their attention away from historically - reliable measures of valuation was «first, that the records of the past were proving an undependable guide to investment; and, second, that the rewards offered by the future had become irresistibly alluring.»

Among the valuation measures having the strongest correlation with actual subsequent market returns, current levels are actually within 10 % of the March 2000 extreme.

For example, our effort to carefully account for the impact of foreign revenues, and to create an apples - to - apples measure of general equity valuation led us to introduce MarketCap / GVA, which is better correlated with actual subsequent 10 - 12 year market returns than any of scores of measures we've studied.

Since valuation is something I've never overlooked, the periodic challenges I've encountered in the past three decades have invariably centered on measures of market action.

In the early 1920s, stock market valuation was comparatively low, as measured by the inflation - adjusted present value of future dividends.

At present, we continue to identify one of the most hostile market environments we've observed in a century of historical data, not only because obscene valuations and extreme «overvalued, overbought, overbullish» syndromes are in place, but also because our measures of market internals remain in a deteriorating condition.

On the basis of the most reliable valuation measures we identify (those most tightly correlated with actual subsequent 10 - 12 year S&P 500 total returns), current market valuations stand about 140 - 165 % above historical norms.

Indeed, if improvement in market internals is joined by a material retreat in valuations, we would expect to shift to a constructive or aggressive outlook (even if valuation measures were still well - above historical norms).