Personal Wealth Management / Market Analysis
Fisher Investments' Founder Discusses Current Market Valuations
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses why valuations aren’t predictive of future stock returns. Ken says valuations may affect how an investor feels, however in reality, aren’t very useful in predicting the future direction of stocks.
Ken has repeatedly analyzed different valuation metrics, including Price-to-Earnings (P/E), Price-to-Book (P/B) and Price-to-Sales (P/S). He shares how there have been positive and negative returns following high and low valuation levels, regardless of the metric. Ken points out that the widely known, but highly convoluted, CAPE Shiller P/E ratio has wrongly predicted the direction of the stock market for much of the last 30 years.
Ken finishes by explaining that current valuations aren’t very high when measuring against historical averages. He’s optimistic for the market, but not because valuations are at lower levels. One metric he does think supports owning stocks relative to other asset classes is the earnings yield (earnings/price). The earnings yield on stocks is nearly 7%, which is higher than the returns on bonds, for example.
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