There's been a lot of chatter here about PE ratios and Great Depression levels of overvalue. If we map PE10 below on a graph you can see the historic trend.
Are we about to have another Great Depression?
Probably not.
We can see strong multiple growth since the 80s, which if we believe is representative of the new norm and will continue, suggests that we're actually not drastically far off the trend. Mapping trends during a peak is risky, this graph would look a lot different after a major correction.
In general we're still a ways off the insanity of the dotcom boom. With only good news coming out short term with stimulus and countries opening back up post covid I don't see a crash soon.
Can you time the market to buy low sell high?
Not easily.
The above graph (orange line) represents selling stocks when PE multiples are 3 above the trend and buying back in when PE multiples are below 3. You can see you massively underperform, that's before we even count missed dividends. You can find very specific numbers that give you a greater return, but they only work on one specific crash and ofter have you sitting out huge periods that'd cost too much in lost dividends.
I think it's possible to reduce losses during downturns through adjustments, but it's not as easy as looking at one number.
Submitted March 01, 2021 at 11:39PM by ini0n https://ift.tt/3b7TtPO
