About the author

Jacob Wolinsky

Founder and CEO of ValueWalk.com (the “Site”) is a web site owned by VALUEWALK LLC, a New Jersey limited liability corporation. I am the former VP of business Development of SumZero, LLC, the world’s largest community I have prior experience in a value based pe firm focused on PIPE transactions in micro-cap companies, and at a value based research firm, which focused on smid caps.

  • Bo

    Thanks for a great post. I agree with the other commentators here that it makes sense to look at several factors although some of these are less relevant than others.

    I know Hussman funds also use another measure for valuing the market. They look at price/peak earnings, where peak earnings is the highest earnings over the last decade. Could perhaps be worth incorporating in your analysis?

  • Timmy

    I agree from looking at your data that 6.5% is a fair estimate for nominal returns over the next 10 years, but if you are going to take interest rates into account, I think a real return estimate would have more value.

  • http://arichlife.passionsaving.com Rob Bennett

    I like the approach of looking at a wide range of valuation measures rather than pointing at one data point

    I strongly agree with this comment. I personally use P/E10 because I am personally convinced that P/E10 is best. But there is no one person who knows it all or who has the life experience needed to appreciate all perspectives. So we need lots of different people coming from lots of different perspectives all sharing their takes.

    The debate is often framed as — Do valuations matter or not? And then one approach to taking valuations into account is compared to the idea of not taking valuations into account at all (Buy-and-Hold). I think that debate is silly. There is today a mountain of evidence that valuations matter and none that I know of that they do not.

    The proper debate is — Which approach to valuations is the best and in which circumstances? That’s a tough call. That’s one re which we could hear lots of intelligent points of view expressed. To get that debate going, we need to close the debate about whether valuations matter or not. That one was settled intellectually 30 years ago. We should be exploring every day the best ways to take valuations into account and leave behind us this question of whether this step needs to be taken or not.


  • http://natebyrd.blogspot.com/ Nate

    Extremely thorough analysis. I like the approach of looking at a wide range of valuation measures rather than pointing at one data point and saying “the market is definitely over(under)valued right now”.

    Someone shared this quote with me recently, which I think tells you a lot about the time period we are in right now: “markets climb up a wall of worry and fall off a cliff of optimism”.

    For a couple of other data points on market valuations see the link below I posted a couple of days ago. I charted historical P/E multiples versus inflation and also wrote some cautionary commentary on Shiller’s P/E 10.


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