Predicting stock returns based on valuation
Let me begin by saying that I am only beginning to understand most of the stock world and I still prefer to invest in mutual funds and ETFs. However, I’ve been pointed to a nifty little tool/calculator that seeks to express the effect of stock valuation on a stock’s return.
I can’t properly explain it, so I’ll let the owner do some talking:
The purpose of the calculator is to help you set your stock allocation strategy. Stocks generally offer a stronger value proposition at times of low or moderate valuation than they do at times of high valuation. By comparing the long-term returns likely to follow from stock purchases made at today’s stock valuation level with the long-term returns likely to follow from stock purchases made at a lower or higher valuation level, you can put together a stock purchase strategy likely to aid you in becoming a true buy-and-hold stock investor. Predicting stock returns by making reference to stock valuation levels prepares you for what is to come in the years ahead.
With that said, please go over and toy with it a little. Maybe you can find the value in it. Me? I’m a little confused with it to actually have it do me any good.
Technorati Tags: stocks, stock valuation, stock returns
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Jered T. Ede said,
Wrote on April 3, 2007 @ 12:05 pm
This seems like an interesting spin/visualization of the price/earnings ratio, essentially. From what I understand of this calculator, its just another way of expressing “buy high, sell low” with a particular focus on value trading - or the practice of buying ‘under-valued’ stocks. What’s really interesting about the calculator is it’s essentially trying to tell you - all things held constant - what you can reasonably expect to earn off of an investment in a company with a p/e ratio of ‘X’ which could be very useful in having realistic long term expectations. Interesting tool.
Rob's Conscience said,
Wrote on June 13, 2008 @ 11:55 am
Prior to using a “tool” (like a spyware remover you find on the ‘net), one is wise to discover what professionals and power users think of the tool. Frankly, there are a lot of ‘free tools’ that do nothing but mess up your system! Here is a forum dedicated to following the antics of the author of that particular tool. IMHO, I’d approach any output from this guy with extreme caution!
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl
Jay W. Arr said,
Wrote on June 18, 2008 @ 7:24 am
Amen to Rob’s Conscience. The author of this “tool” is a well-known internet crank. Just google “Rob Bennett financial adviser”.