Fundamentals: Historic long term Price
to Earnings ratio.
Posted 11/15/04
When we think of "value," we must consider the historic trend and
the minimum and maximum values to arrive at something that will relate to
an "average," or "mean" over a long term period. The chart below looks
at the historical PE (price to earnings ratio) for the last 124 year
history of the "total US stock market," from 1880 to 11/2004.
While this same chart has been floating around the internet
for many years, and it does "roughly" correspond with others I have seen
from time to time, especially with a good one from Decision Point that we
use from time to time, I have no way of knowing if it's entirely accurate
.
Assuming that
it is accurate, or at least close, then we can see a "fairly good" defined
cycle of "about 30-36 years in this PE ratio data. While the troughs
seem better defined and regular then the tops, it all "seems" to support
this cycle.
As for the historic
PE ratios, the chart and the notes on it speak for themselves.
For the
Price
Time-R
eview
Andrew Quiggly
Editor
