DYI Comment: As much as I admire Benjamin Graham
if alive today would be awestruck by the Federal Reserve’s MASSIVE security
market intervention. Not just a U.S. phenomenon
including world wide central banks insane money printing operations. This has distorted security markets with
their sub atomically low interest rates so much so fooling investors into
thinking that current price/valuations to be reasonable. Ben Graham’s formula is now very close for
dollar cost averaging into common stocks!
Times are different as speculation – due to massive central bank
distortions – is now the new investment process.
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]
EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate
1.75 plus: Safe for large lump sums & DCA
1.30 plus: Safe for DCA
1.29 or less: Mid-Point - Hold stocks and purchase bonds.
1.00 or less: Sell stocks - Purchase Bonds
Current EYC Ratio: 1.27(rounded)
As of 2-1-20
Updated Monthly
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 any amount greater than yearly salary.
PE10 ..........30.84
Bond Rate...2.80%
Lump Sum any amount greater than yearly salary.
PE10 ..........30.84
Bond Rate...2.80%
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.....
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