Stock Market Drives Higher

Long Term Bonds Sag!

This short term movement upwards for stock prices as measured by the S&P 500 ramrodded the Shiller PE to 36.13 while at the same time long term bonds sagged in value pushing up their overall yield – Vanguard’s Long-Term Investment-Grade Fund to 5.52%!

This has moved Ben Graham’s formula closer to a crash alert basis.  With yields spiking higher and stocks valuations popping upwards those buying or holding the S&P 500 stocks (dividend reinvested) – [go to sleep like Rip Van Winkle awaking 10 years from now] – will underperform bonds (interest reinvested) during the same time period.

Simply put the earnings power you receive for your purchase of the S&P 500 is 1 ÷ 36.13 x 100 = 2.76% as compared to investment grade Long term corporate bonds at 5.52%.  You are now simply overpaying for corporate profits that which in the end drives stock prices along with dividend payments.

How much are you overpaying simple arithmetic:  (5.52 – 2.76) ÷ 2.76 x 100 = 100%!  Your interest earned is now 100% greater than the price you pay today for the earnings of the S&P 500.  The probability for long term investment grade corporate bonds outperforming stocks is now highly likely!           

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........36.13
Bond Rate...5.52%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.55(rounded)

As of  5-14-25
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham