Thursday, August 04, 2011
Stocks Are Still Expensive, by Dave Leonhardt

"[S]tocks would have to fall another 6 percent from their current level to return to the 50-year average.

This version of the P/E ratio is not the most popular one. You’re more likely to see a ratio based on one year of past earnings or on a projection of future. But the 10-year measure has several advantages over the other versions.

It was first recommended, as far as we know, by Benjamin Graham and David L. Dodd, in their classic 1934 textbook, Security Analysis. Mr. Graham was an important mentor to Warren Buffett. More recently, Robert Shiller, who correctly called both the dot-com bubble and the housing bubble, has argued for using a measure like the 10-year ratio."

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