Message Font: Serif | Sans-Serif
No. of Recommendations: 5

For the first time since the recovery began, Warren Buffett’s favorite valuation metric has breached the 100% level. That, of course, is the Wilshire 5,000 total market cap index relative to GNP. See the chart below for historical reference.
I only point this out because it’s a rather unusual occurrence and the recent move has been fairly sizable. It happened during the stock market bubble of the late 90's, but then occurred again just briefly during the 2006-2007 period when the valuation broke the 100% range in Q3 2006 and stayed above that range for about a year. We all know what followed the 2007 peak in stock prices.

Read more:
Print the post Back To Top
No. of Recommendations: 7
Not that I disagree that the US market seems high and closer to a top than a bottom,
this isn't a very good metric of market valuation.

Consider, for example, what share of the Wilshire 5000 market cap's value
derives from the earnings stream on activities taking place outside the US (specifically, outside US GNP).
A little under half, give or take.

CAPE and even Q are much better metrics. More work to calculate, but
other people will do it for you, so it's actually less work.
Just bookmark this page

So what's a value investor to do?
Keep dancing as Mr Prince would recommend?

Nope, get outta Dodge.
Cyclically Adjusted Earnings Yields for selected single-country ETFs.
Earnings are a bit stale, from April last year, but E10 changes very slowly.
Country         Symbol   Price   E10   CAEY
Italy EWI 13.50 1.63 12.07%
Spain EWP 31.13 3.13 10.05%
Russia ERUS 23.99 2.34 9.75%
Netherlands EWN 21.22 1.94 9.14%
Belgium EWK 14.42 1.25 8.67%
France EWQ 24.00 1.89 7.88%
Austria EWO 18.50 1.35 7.30%
United Kingdom EWU 18.37 1.33 7.24%
China MCHI 48.88 3.48 7.12%
Singapore EWS 13.90 0.98 7.05%
Brazil EWZ 56.41 3.82 6.77%
Germany EWG 25.34 1.65 6.51%
Australia EWA 26.54 1.70 6.41%
Japan EWJ 10.04 0.64 6.37%
Taiwan EWT 13.60 0.80 5.88%
Switzerland EWL 28.92 1.69 5.84%
South Africa EZA 67.81 3.93 5.80%
Sweden EWD 33.09 1.86 5.62%
Hong Kong EWH 20.24 1.09 5.39%
Turkey TUR 66.54 3.54 5.32%
South Korea EWY 60.57 3.18 5.25%
Thailand THD 88.76 4.62 5.21%
Canada EWC 28.97 1.50 5.18%
India INDA 26.35 1.18 4.48%
Malaysia EWM 14.56 0.63 4.33%
USA IVV 152.94 6.45 4.22%
Mexico EWW 71.81 2.85 3.97%
Chile ECH 67.81 2.55 3.76%
Indonesia EIDO 32.39 1.05 3.24%

This is just an update of something I found on a random web page, so
you might want to double check the earnings figures, but they seem plausible.
By far the best simple single metric of your forward expected returns is the CAEY at time of purchase.
Through tricky to estimate, one could add to that a factor for the cyclically
adjusted retained earnings "yield" (=CAEY-CADY) times your estimate of
the forward long run average return on incrementally invested capital.
Likely higher in the US than Japan, for example.

Print the post Back To Top
No. of Recommendations: 0
times your estimate of
the forward long run average return on incrementally invested capital.

Do you mind elaborating on how you go about estimating forward return on incremental capital for an entire country? Do you just extrapolate from historical data? If so, where would you even find this?
Print the post Back To Top