That Pesky Indicator Still Saying U.S. Stocks Are Cheap
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It seems like for every doom-and-gloomer saying the U.S. stock market is headed for a 2000-style bubble burst, there’s an optimist behind them saying, “That’s nonsense -- and can I interest you in a flier on an IPO for an unprofitable Internet company?”
There is one old-fashioned measure of valuation that rarely creeps into the conversation, and when it does it creates a heated debate over its significance. The Rule of 20 states simply that valuations are fair when the sum of a price-to-earnings ratio and the rate of inflation is equal to 20.