I like unadulterated, virgin raw data.
It is much easier for me to get a the truest picture of a firm’s past performance when the data I’m staring at has not been ‘smoothed’ in any way.
For me smoothing out exceptional items is like trying to deny history.
It happened, get over it.
After the ‘smoothing process’ there is usually an averaging process to try and get an idea of the averge of the smoothed data.
Why not just average the raw data instead saving yourself half the work and getting the same result in the end: does this company increase it’s earnings/ROCE/dividends over the long term or not?
This is why I prefer the PE ratio for the S&P 500 rather than the Schiller PE ratio.
Still individual investors have their own methods and what works for them works for them.
Here’s the value of the S&P 500
From the multpl.com website:
Price to earnings ratio, based on trailing twelve month “as reported” earnings. Current PE is estimated from latest reported earnings and current market price.
That’ll do for me and as far as the value of the S&P 500 is concerned, well it’s sitting at a number that in the past has seen the market reduce in value and quite violently at times too.
What can we make of the S&P’s PE ratio of 25.94?
That’s a high number and I suspect it will go higher before we see a correction based upon Trump’s plans for the US economy: lower taxes, smaller government and infrastructure spending to boost the economy.
This week’s rate hike by the fed may be spark that sets off the correction just like it did last December (2015):
If the outlook remains bullish over the medium to longer term with higher valuations likely then so be it.
I continue to see valuations where buying opportunities exist in this market so the value of the S&P 500 is only there as a reminder to remain cautious and to buy at good prices for maximum protection to the downside.