This is a scatter plot of ratio of price to my smoothed and scaled-up value line, over the last 20 years, daily figures. The forward two year returns are an annualized rate, after inflation.

For fun, here is almost the same graph, but looking forward four years instead of two.
Differences: only the period since mid 2009, and it's four year forward real returns rather than two years forward. As before, the end date is smoothed. In this case, the smoothed endpoint is the average price 3-5 years after purchase date. So, rate of return is ((average real price 3-5 years later)/(real price today))^(1/4)
http://www.stonewellfunds.com/PriceToTrendAndForwa...

This start date is chosen to be an era with an extraordinarily good fit! Start dates in the 2005-2009 range gave lower returns for the same starting apparent valuation level, because of the step change downwards in valuation levels that happened around the credit crunch.

Valuation is mostly useless as a timing indicator, but pretty good for getting an idea of likely longer term returns for anything that has a relatively predictable trend of future value.

Jim

Mechanical Investing FAQ

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