the 30 year average PE of the S&P 500 is 24.8.

Just a reminder to all:
You can't do math on PE ratios. At least, not meaningfully.
Throw in one month of negative earnings, or one cent of earnings, and see what happens : )

If you want a meaningful result:
Invert the figures to get earnings yields, average those, then invert the result to get a P/E ratio.

As for Mr Sjuggerud's method, his rule was that the market was expensive if the current P/E was over 17. If you wanted to adjust that to "modern" conditions, he picked the number 17 because the market was trading above that only around ~30% of the history that he was considering, so you'd want to look at the ~70th percentile. 70th percentile of CAEY would be a logical improvement, but the hard part is deciding how much history to consider. FWIW, my figures show the market to be at percentile 88.6 versus 30 year history based on cyclically smoothed real earnings. It would be higher, but the tech bubble lasted a really long time, so it's a meaningful fraction of the last 30 years.

Jim

Mechanical Investing FAQ

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