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Comment for Where Are We with Market Valuations?
Posted by: mpickering
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Date: March 2, 2012 02:09PM
Wilshire 5000 total market capitalization is wrong as of 3/2/12. Correct value is $14,192.82
Comment for The percent of total market cap relative to Gross National Product?
Posted by: AJ Post
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Date: March 19, 2012 05:24PM
I may be reading the chart wrong, but the last chart on this page the "Predicted and actual stock market returns" with the TMC/GDP ratio seems a little off to me. With the ratio at 40%, the green line, the overall returns are negative. With the ratio of 120 and the market of overvalued and the red line the returns went as high as 30% and finished at 12%. I really like this ratio as well as the fact that Warren Buffet uses this as Top analysis. Can you see if I'm reading the chart wrong? Thanks.
Great website as well!
Comment for The percent of total market cap relative to Gross National Product?
Posted by: gurufocus
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Date: March 19, 2012 06:39PM
The 40%, 80%, or 120% lines in the third chart indicate where the return would be if the market-cap/GDP ratio is 40%, 80%, or 120% 8 years from now. A lower future ratio generates low returns.
Comment for The percent of total market cap relative to Gross National Product?
Posted by: AJ Post
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Date: March 19, 2012 08:10PM
on that chart why does the overvalued line, the red line, perform so well in the next eight years. I know it doesn't on the rest of the page but the chart confuses the data with me. Why does the red line perform 30%?
Comment for The percent of total market cap relative to Gross National Product?
Posted by: AJ Post
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Date: March 19, 2012 08:48PM
to add to my question, why does TMC/GDP, of 40 , the undervalued line "generates low returns" as you said?
Comment for The percent of total market cap relative to Gross National Product?
Posted by: gurufocus
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Date: March 19, 2012 09:48PM
Red, brown, and green lines are not actual returns. They are expected returns if future market is high, median, and low, respectively. If future market level is high, like the red line, the expected return from this point is high.
See this part of the equation in the the text: (Re/Rb)(1/T)-1
Comment for The percent of total market cap relative to Gross National Product?
Posted by: AJ Post
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Date: March 20, 2012 10:11AM
I have a little trouble understanding the formula. What is the expected return of TMC/GDP=40 over the next 8 years as well as TMC/GDP =120 over the next 8 years? As I understand it the lower market cap to GDP would produce higher returns. Thanks for the timely replies.
Comment for The percent of total market cap relative to Gross National Product?
Posted by: AJ Post
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Date: March 20, 2012 10:21AM
"If future market level is high, like the red line, the expected return from this point is high." If you look at the peaks and valleys of your second chart, The Ratio of Total Market Cap to US GDP, from the high of 150% to the 1980 price as well as the 2009 price, wouldn't the green line have the higher
expected return? I'm still struggling with that.
Comment for The percent of total market cap relative to Gross National Product?
Posted by: polyocho
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Date: April 29, 2012 02:16PM
Would appreciate your help in understanding the equation regarding the values Re/Rb:
Investment Return (%) = Dividend Yield (%) + Business Growth(%) + (Re/Rb)(1/T)-1 = Current dividend yield + 10-year average GDP growth rate + (Re/Rb)^(1/T)-1 1. Is "Re" referring to TMC/GDP of any date and Rb (beginning) referring to the TMC/GDP of any earlier date, where T= difference in time? For example if the dates were 1/1/2005 and end date was 1/1/2012 then T=7 years? Thanks
Comment for The percent of total market cap relative to Gross National Product?
Posted by: gurufocus
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Date: April 29, 2012 02:48PM
that is correct Polyocho.
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