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Stocks are still expensive, argues NYT's David Leonhardt. He goes back to the old-school...

Stocks are still expensive, argues NYT's David Leonhardt. He goes back to the old-school Graham-Dodd valuation of comparing prices to corporate earnings over the last decade - instead of looking forward or back only a year - to make his bearish case. By this metric, stocks still have 8% to fall before they reach the 50-year average.
Comments (4)
  • Andy Harless
    , contributor
    Comments (95) | Send Message
     
    10-year average earnings are distorted by the impact of the crisis, which produced a lot of non-recurring losses.
    4 Aug 2011, 06:13 PM Reply Like
  • bkpark
    , contributor
    Comments (325) | Send Message
     
    I would have thought that was the idea behind taking 10-year average earning: the losses companies suffered in 2008 is divided by 10, making its impact much less than if you took, for example, 5-year average earning.

     

    Besides, unless the argument is that these "non-recurring" losses won't recur in another economic downturn, why should the losses in an economic downturn be counted as "non-recurring"? It's not as if a stockholder can choose to avoid them ...
    4 Aug 2011, 08:52 PM Reply Like
  • Andy Harless
    , contributor
    Comments (95) | Send Message
     
    The losses were considerably more severe than what we see in a typical economic downturn. It's not as bad as it would be with a 5-year average, but this 10-year average has the particular problem that it includes two recessions, just because of the way the particular 10-year slice happens to cut. It will look different in another year or two, if there's not another recession.
    5 Aug 2011, 05:54 PM Reply Like
  • Andy Harless
    , contributor
    Comments (95) | Send Message
     
    Another thing this valuation method doesn't take into account is the returns on competing assets. With bond yields at 50-year lows, you should be willing to pay more for stock than you normally would.
    5 Aug 2011, 05:56 PM Reply Like
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