No. of Recommendations: 10
Tight graphs like that are intrinsically interesting, nice work!
I really don't think it deserves that view. If it weren't for the log-log format, the wild variation of P/B would be apparent (expensive days have been around 3.3 times the valuation multiple of cheap days). All it's really saying is that both price and book per share rose by more than four orders of magnitude in the last 50 years. Since those end-to-end rises are much bigger than the 3:1 variation range of valuation multiples, it looks like a meaningful fit.
The bigger problem is that the suggested interpretation of the end result, with the fit line suggesting that a "normal" P/B right now would be 1.545 on that trend line, doesn't pass the sniff test given the 15 year average of 1.40. No, I'm sorry, it's utter nonsense and it's just plain wrong.
If you want to have an idea of what a normal price would be now, pick any decent metric of observable value, ponder its typical relationship to market price in the modern era, and apply that multiple to the current level of your metric.
Jim
