Great work. But I don't get how can you make a valuation gauge (PPT) from using non-valuation metrics?! You are using all price signals in there. But the whole point of asking what is the correct valuation is to challenge the price signal that one gets. Other than that, nice job.
Very useful list of indicators. I like to use a combination of Mstsar FMV, EV/Gross Profits, (EV/GP)/Fwd gr rate, TTM PE, NTM PE. I look at these collectively and monitor trends across time. Eg. NVDA was “cheap” in late 2023…not anymore. Cheers, Callum.
Hi Callum - you list CAPE as one of your preferred tools. Have you ever audited its explanatory power? Every time I have, I leave confident that it is the least effective & most misleading valuation indicator ever created (not surprisingly) by an academic. In my experience the only people who use or refer to it are the perpetual bears (because it very rarely does anything but suggest equity markets are overvalued). I really enjoyed your article (as someone who has worked in markets for 40 yrs), but I hope you don't mind me saying that I couldn't disagree more with your conclusions. E.g. I would characterise CAPE as not only unusable, but highly misleading (& the cause of a lot of people not being able to retire) whereas I think PEG (I use 3 yr fwd growth) for investors (as distinct from traders) is a staple (noting that over anything more than a few months, all of the explanatory power is in the earnings growth delta to expectations). PEG captures this foresight where as who cares about the last 10 yrs earnings (& therefore CAPE). Respectfully & with thanks, Nick
Great post. The charts show the market is richly priced. The question is whether this is a truly a 2000 or 2021 peak - or a 1995 or 2018 runway to remarkable earnings growth ahead.
Great work. But I don't get how can you make a valuation gauge (PPT) from using non-valuation metrics?! You are using all price signals in there. But the whole point of asking what is the correct valuation is to challenge the price signal that one gets. Other than that, nice job.
Very useful list of indicators. I like to use a combination of Mstsar FMV, EV/Gross Profits, (EV/GP)/Fwd gr rate, TTM PE, NTM PE. I look at these collectively and monitor trends across time. Eg. NVDA was “cheap” in late 2023…not anymore. Cheers, Callum.
Hi Callum - you list CAPE as one of your preferred tools. Have you ever audited its explanatory power? Every time I have, I leave confident that it is the least effective & most misleading valuation indicator ever created (not surprisingly) by an academic. In my experience the only people who use or refer to it are the perpetual bears (because it very rarely does anything but suggest equity markets are overvalued). I really enjoyed your article (as someone who has worked in markets for 40 yrs), but I hope you don't mind me saying that I couldn't disagree more with your conclusions. E.g. I would characterise CAPE as not only unusable, but highly misleading (& the cause of a lot of people not being able to retire) whereas I think PEG (I use 3 yr fwd growth) for investors (as distinct from traders) is a staple (noting that over anything more than a few months, all of the explanatory power is in the earnings growth delta to expectations). PEG captures this foresight where as who cares about the last 10 yrs earnings (& therefore CAPE). Respectfully & with thanks, Nick
Great post. The charts show the market is richly priced. The question is whether this is a truly a 2000 or 2021 peak - or a 1995 or 2018 runway to remarkable earnings growth ahead.