Morningstar market valuation graph

Delawaredave5

Full time employment: Posting here.
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Dec 22, 2004
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I've been watching this M* "market valuation graph" the last bunch of years.

Morningstar.com: Market Valuation Graph

I haven't fully tried to understand methodology how they get valuations - and I don't know how "forward looking" they are.

Looks like we're at 0.85 now, with "all time low" since data started of 0.78 in 2002.

So I'm suprised we're already approaching 2000-2002 "undervaluation levels". But watch how valuations can "bump positive" and then drop again.

And valuations can go up by one of two things happening:
1. Stock prices increasing, and
2. Company earnings falling

This information plus $4 might get you an overpriced "latte sprittzo" at Starbucks.....
 
Something people aren't discussing on this group is that we're in an earnings recession. Forget the economy for the moment, corporate earnings have been on a tear (due to the 2001 stimulus and other factors) and are at an all time high. Or, that is, were at an all time high. They've been steadily trending down since I believe last summer.

Now add to that the effects of the housing bust, overspent consumer, etc., and you get an idea why stock markets are so upset ;)
 
I've been watching this M* "market valuation graph" the last bunch of years.

Morningstar.com: Market Valuation Graph

I haven't fully tried to understand methodology how they get valuations - and I don't know how "forward looking" they are.

Looks like we're at 0.85 now, with "all time low" since data started of 0.78 in 2002.

So I'm suprised we're already approaching 2000-2002 "undervaluation levels". But watch how valuations can "bump positive" and then drop again.

And valuations can go up by one of two things happening:
1. Stock prices increasing, and
2. Company earnings falling

This information plus $4 might get you an overpriced "latte sprittzo" at Starbucks.....


I review that graph at least monthly. I too am surprised by how undervalued some stocks are. Another couple of months like January and we will be at low valuations (based on this graph) not seen since 2002-2003.
 
That is just Mornimgstar's opinion. If you look at some of their stock fair values, they can be revised over time to follow the stock price. EBAY was one I think that showed M* was not exactly prescient in their valuations. They increased their valuation dramatically after the price of EBAY had already reached those levels. It would have been more use if they had valued EBAY highly and then the stock price caught up!

It is a bottoms up valuation of the market, but we don't know what economic assumptions they are making and if any recent events may effect M*'s valuation. It would be kind of a bummer if their valuation went down to match the market instead of the market going back up! I think a consumer spending lull due to no savings and too much debt (in aggregate) might not be in their scenario.

While I certainly wouldn't rely on M* alone, I think they do have some credibility. I don't think the markets will go down and stay down. They should recover after some period of time, and I think (and M* apparently thinks) they will make up for this lost ground at that time. More of a dip than a step. They key question is how much and how long?

Dan
 
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