AIM UK

[ls7550]

Hi Tim

The blue line is the UK's FT All Share Index value (somewhat similar to the US S&P500).

I update the data once per week, and just take the FTAS index value at that time (usually after Wednesdays UK market close).

The yellow line is the 20 week simple moving average of the individual weekly Index levels.

Both of those are scaled to the right hand Y-axis in the RV chart.

The red bar is the FTAS PE value, scaled to the left Y-axis. So the tops of those bars give a feel for the trend of the PE ratio. On top of that however the bar is extended upwards (stacked bar) in green to reflect the current Bank of England Base Rate.

I used to use Tom's iWave as a guide, but when that went private and was replaced with the vWave I didn't like the vWaves scaling (potential - and more recent actual going negative (leveraged)).

Whilst the RV provides a feel for current valuations, the second "Ladder" table provides a more numerical guideline of appropriate cash reserves (and hence stock exposure) to carry at any one time.

Crudely the Ladder might be considered as being scaled around dividend yields. UK markets historically averaged around 4% dividend yields, so the top of the Ladder is around 2% dividend yield whilst the bottom is around 8% dividend yield.



I use data collected from http://markets.ft.com/ft/markets/researchArchive.asp?report=FTUK&cat=EQ that shows current index, dividends, PE, dividend cover etc. to identify the most recent RV and Ladder levels/values.

Generally the UK and US markets follow similar price motion patterns, however as the UK generally pays more in dividends than does the US, the US index capital only values tend to show greater performance over the longer term. Where however dividends are included and reinvested then the two markets tend to show similar total performance. I suspect therefore that the RV/Ladder combination might equally be used as a guideline for US holdings.

Regards. Clive.