That’s absolutely fine with me.A further disingenuous contribution from you, I remain unclear regarding your respective agendas and motives.
You’re just making stuff up and the danger is that people will listen to you. Focussing on an index’s median rather than its mean is best practice, as one can be assured that the valuation metric is not skewed by individual outliers, such as may occur with one-time write-offs or other material accounting trickery. The “markets are expensive/12 years isn’t a long time horizon/put your money in State Savings Bonds” nonsense is as reckless as it is dangerous.
That’s interesting, given that Ned Davis use “median earnings yield” as standard. It’s pretty standard in many areas to eschew the mean in favour of the median, but then neither of you are really interested in meaningful discussion, are you? Much easier to construct rabbit-holes and derail the discussion.
e.g. Poster No 1: “Is my 12 year time horizon too short?”
Poster No 2: “No, it’s okay for X/Y/Z reason”
In rides Sarenco: “You chosen an arbitrary 12 year time horizon!” This despite it being at the root of the person’s initial enquiry.
And then his pal Sunny: “You copied X/Y/Z from the internet!”
Presumably people are familiar with the term “sock puppet”?
Focussing on an index’s median rather than its mean is best practice, as one can be assured that the valuation metric is not skewed by individual outliers,
I really don’t understand why anybody would use the P/E of a “median stock” as a reference point when projecting returns for a market cap weighted index. The largest cap stocks will always dominate the index so why would the P/E of the median stock in that index particularly matter?
the median ... is a fair statistic to consider, though it is not absolutely consistent to track this statistic against the 10 year returns as these latter are overall cap weighted.
Like @Sarenco I also read it to mean something like "No one has ever lost money on an equites basket over any 12-year period."Nice selective quote there Sarenco!
What I actually said was “with valuations at their current levels” or words to that effect.
cremeegg if earnings are nil P/E is infinite. One company with nil earnings would mean the average for the whole lot is infinite. If earnings are near nil we would not quite have infinity but we would have very large outliers. This problem always exists when the underlying distribution is very skewed e.g. bounded below by zero but unlimited bounds on the upside. That is the case with wages and with P/Es.Hoping to avoid the personal tone that is creeping in. I would like to address this point.
I don't think that a median P/E or (earnings yield) ratio is common practice. I may be wrong about that I am not an expert, thats just my understanding. However the idea that a ratio like this may be skewed by an outlier is simply incorrect. There are certain metrics which can be skewed by outliers but a P/E ratio is not one of them. The usual example is given of average wages being skewed by a small number of high earners, is not relevant to a ratio.
If one company with a high P/E makes up 90% of an index and 10 companies with low P/Es make up the rest it is the mean and not the median P/E that drives results. Thats arithmetic not opinion.
But bonds are a far worse proposition. No capital upside. Yield of 0%. Potentially big downside. Institutions are holding bonds at negative yields for technical reasons all tied up with the policies of the central banks. Retail investors should shun bonds for the foreseeable future. Once the central bank manipulation has been wound down an bond yields rise to around 4% p.a. then they will again serve a purpose in stabilising and diversifying fund performances.
Meanwhile cash is your only man - max out is State Savings.
cremeegg if earnings are nil P/E is infinite. One company with nil earnings would mean the average for the whole lot is infinite.
Of course, another statistic which would make sense as a mean would be to divide the market cap by the aggregate market earnings.
Example: A: Market Cap=100 Earnings = 5; B: 100,3; C 100,0Ah Duke, whatever about the median P/E not being useful, the average for the lot becoming infinite only arises if you average the averages. Learning not to do that is literally Junior Cert stuff.
Yes, that is probably the best statistic for aligning with the growth in the index. But I was correcting your reference to "average of averages".Total market Cap 300
Total Earnings 8
Market P/E 37.8
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