A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi Clive, Re: Dividend Yield, Garzarelli's Valuation, etc.....

My range of 19 to 22.5 (current 10th and 90th percentile) is based upon the 13 week Treasury coupon rate plus Value Line's P/E rather than the S&P 500 P/E.

Value Line's P/E is currently a bit higher at 18.4 and the 13 week Treasury coupon as of last week was 4.025% for a total of 22.43, just under the 90th %tile.

If you are going to use the S&P500 plus the short bond yield then a new bell curve should probably be created. I would imagine it will be something closer to 18.5 to 21.5 when done over a 25 year span. Elaine G. back in 1987 said that it centered around "20" and didn't stray very far. Unfortunately I don't know exactly what index she used for the P/E or interest rate she added to it.

The Value Line number covers about 1700 companies which is why I chose it. It measures the "median of estimated Price/Earnings Ratios of all stocks with earnings." It's currently 18.4

Value Line also has another Mid and Small Cap P/E they post weekly which covers an additional ~3500 companies. Because these aren't capitalization weighted, I think they give a good portrait of the larger and smaller cap markets. One needs to remember that the P/E is the "median trailing P/E of all stocks with earnings in the 3500 stock universe." It's currently 19.5.

It looks like your Dividend Yield method is also singing a similar tune as far as market risk is concerned.

Thanks for bringing it up-to-date.

Best regards, Tom