After warning folks not to base their conclusions on
a single valuation measure, the estimable Barry Ritholtz identifies
a single valuation measure (enterprise value to EBITDA) as the most probative and concludes from it that the market is modestly valued.
The best
single valuation measure was the price - to - sales ratio.
There will always be conceptual issues with
any single valuation measure, so the best we can do is evaluate valuations from the standpoint of multiple historically reliable approaches.
Not exact matches
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.
In 2001, the Oracle of Omaha dubbed it as ``... the best
single measure of where
valuations stand at any given moment.»
[I have found Professor Robert Shiller's P / E10 to be the best
single measure of
valuation so far.
Almost all of the factors and smart beta strategies exhibit a negative relationship between starting
valuation and subsequent performance whether we use the aggregate
measure or P / B to define relative
valuation.9 Out of 192 tests shown here, not a
single test has the «wrong» sign: in every case, the cheaper the factor or strategy gets, relative to its historical average, the more likely it is to deliver positive performance.10 For most factors and strategies (two - thirds of the 192 tests) the relationship holds with statistical significance for horizons ranging from one month to five years and using both
valuation measures (44 % of these results are significant at the 1 % level).
I have found Professor Robert Shiller's P / E10 to be the best
single measure of
valuation so far.
Warren Buffett stated that market capitalization as a percentage of GDP is «probably the best
single measure of where
valuations stand at any given moment.»
In their March 2012 paper, «Analyzing
Valuation Measures: A Performance Horse - Race over the past 40 Years,» Wes Gray and Jack Vogel asked, «Do long - term, normalized price ratios outperform
single - year price ratios?»
In their March 2012 paper, «Analyzing
Valuation Measures: A Performance Horse - Race over the past 40 Years,» Wes Gray and Jack Vogel asked, «Do long - term, normalized price ratios outperform
single - y...
Principle of contribution - A
valuation principle that states that the value of any component of a property is
measured by how much it adds to the net income (or market value if the subject property is a
single family dwelling) by reason of its presence, or detracts from the net income (or market value) by reason of its absence.