Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
To calculate it, you take the price and then divide it by the earnings, which is arguably the most important driver of stock prices.
Over long-run, this market multiple has a tendency to revert to its mean.
But in the short-run, it’ll trend above and below the mean for long periods of time.
“Market multiples rarely trade at average levels,” said Morgan Stanley’s Adam Parker. It’s an obvious observation, but it may be the most important observation for anyone who considers valuation before making investment decisions.
Just because the multiple is above its mean doesn’t mean you should start shorting the market like crazy. Similarly, just because the multiple is below its mean doesn’t mean you should expect instant profits by buying stocks.