Sunday, 3 October 2010

No nonsense FTSE 100 cyclically adjusted PE ratio update – October 2010

No ramblings from me today. It’s just a simple update of the FTSE 100 cyclically adjusted PE (CAPE or PE10).

The first chart shows that with the nominal FTSE 100 price moving from 5371 to 5592.9, an increase of 4.1%, over the month the PE10 ratio has also risen from 13.5 to 14.1. This is still well below the FTSE 100 PE10 20 Percentile of 17.0 while the 80 Percentile is 23.7. The long run average is now 19.9 for the dataset shown in the chart. The correlation between the PE10 and the Real (inflation adjusted by the CPI) FTSE Price is a strong 0.70.

Saturday, 2 October 2010

The challenges of value investing

Unlike some people out there I am not a value investor in the true sense of the word. That is I don’t go looking for individual stocks which through the use of valuation metrics appear under priced. I would more class myself as a pseudo value investor. My strategy is to be either under weight or over weight equities depending on whether the market appears over or under valued using the cyclically adjusted PE ratio (CAPE or PE10). I now track this for 3 markets:
- The UK FTSE 100 CAPE
- The US S&P 500 CAPE
- The Australian ASX 200 CAPE