Are shares cheap, you ask? “Compared to what?” is my first reply.
How to value the stock market
Analysts, journalists and private investors often talk about the market being cheap or expensive on a P/E basis. What do they mean?
Contrary to what some of its adherents imply, PE10 will not see you dive effortlessly in and out of the market like a seagull stealing chips. But it’s a useful tool nonetheless.
Wondering whether the market is expensive? It’s a good but very hard question to ask. Looking at its earnings yield might give you a clue. (That’s “might”).
Roll up, roll up, for another widely-quoted measure of stock market valuation with more flaws than a cut-glass diamond.
As long as you’re not talking nose-bleedingly stupidly high P/E ratios, a higher P/E ratio for the market is no reason to fear lower returns.
How much it rains in the US has a better statistical record of predicting returns then some variables you’ll hear tossed about in the media…