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Ben Graham speech: 'Securities in an insecure world'


Guest JoelS
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Very interesting, thanks for posting. One thing I found in here was his description of how he viewed the levels of the S+P 500 and DJIA. He came up with a formula which is something quite similar to the Shiller PE. Just briefly calculating the data for today I get an avg S+P 500 earnings of 79.12 over the last 10 yrs capitalized with twice the current AAA bond yield of 3.6%. That gives a normalized level for the S+P 500 of about 1100, with a P/E of 14. Case 2, If you use current S+P earnings of 104 and twice  the 30yr T-bond yield @ 2.5% it comes out to 2080 with a multiple of 20. I'm far from an expert on this stuff, but to get to the current valuation one has to assume current earnings which are record high will continue on, and interest rates which are near record lows will continue on, it seems unlikely this can persist. It seems the more reasonable case would be somewhere between the conservative Graham valuation and the current one. With that said Buffett says we are in a zone of reasonableness so I don't know, any thoughts?

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