Valuations are low only if you have short memory
I felt really old on Thursday.The guest before me on a television talk show expressed astonishment that price/earnings ratios were so low currently. In fact, he pointed out incredulously, some stocks' P/Es had dropped so low that they were now even in the unheard of single digits.To me, this just showed how little stock market history that this guest really knew. In fact, according to data collected by Yale University Prof. Robert Shiller, the stock market's P/E ratio has been below 10 in 17% of the months since 1871.That's about one-sixth of the time.Of course, most of those months came more than two decades ago. That's why those with short memories can get away with thinking that current P/E ratios are particularly low. The last time the market's P/E was below 10, for example, according to Shiller's data, was in 1984, some 24 years ago. Anyone younger than 45 or 46 was probably still in college at that time.I was prompted by this talk show guest's incredulity to see how the stock market's current P/E ratio stacks up to long-term historical norms. I emerged from my analysis with incredulity, but of just the opposite variety: I was amazed at how high the stock market's current valuation is, even after the market's plunge over the past month....MORE
