Same P/E To Same P/E Makes Sense To Me

Today’s higher than average market valuation shouldn’t preclude you from putting new money into stocks. History shows that if you buy at today’s valuation and hold for the long-term that you will be amply rewarded. One way to look at the results is by measuring the market’s return using a same P/E to same P/E time horizon.

P/E Doesn’t Predict Future Earnings

Some people say today’s price-to-earnings ratio (P/E) is a sign of overvaluation. Others say it’s a sign of improved earnings growth in the future. In my view, it’s neither. The current valuation of the stock markets doesn’t tell us anything about the future of corporate earnings.

Should You Secular Market Time?

Trying to time when financial markets will go up or down is about as useful as betting your retirement money on a pair of dice. I’ve been a critic of this pseudo-science all of my life. However, there is one type of market timing that I agree with. It’s call secular market timing. The word secular is derived from the Latin word saecularis meaning of a generation, belonging to an age. A secular market includes many bull and bear markets within in one large generational move, in which valuations move from one extreme valuation to the other. These peaks and troughs occur over the long term, 25- to 35-year periods on average.