Welcome to the Vitus Capital Blog!
Notes to myself, possibly of interest to others.
-- Bill Northlich

Monday, February 14, 2011

Sideways Markets

Economic Growth + Starting P/E =
Economic Growth Chart

The P/E journey from one extreme to the other is completely responsible for sideways and bull markets: P/E ascent from low to high causes bull markets, and P/E descent from high to low is responsible for the roller-coaster ride of sideways markets...

Since 1900, the S&P 500 traded on average at about 15 times earnings. But it spent only a quarter of the time between P/Es of 13 and 17 -- the “mean zone,” two points above and below average. In the majority of cases the market reached its fair valuation only in passing from one irrational extreme to the other.

Mean reversion is the Rodney Dangerfield of investing: it gets no respect. 

---Vitaly Katsnelson

Bill:  S&P PE today is 28

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