Disclaimer

DYI:  Stock valuation, though pricey are no longer insane since they came off their peak on February 12, 2020 at 29551.42 and closed Friday at 21,200 for a whopping 28.3% decline!  

Shiller PE is back down off it lofty perch and resides at a pricey but more normal valuation of 23.54.  Compared to interest rates that are sub atomically low stocks are the better deal compared to bonds.  Be as that may be stocks are no where near the give-away-table of the late 1970’s and early 1980’s when the Shiller PE was below 10! 

Simply put as Benjamin Graham so aptly pointed out “you are no longer concentrating purchases in the upper levels of the market as this will provide a very real margin of safety, under favorable conditions, preventing or minimizing a loss.” 

Stocks are not on the give-away-table and yet are now priced favorably as compared to investment grade bonds DYI investor’s need to look into stock funds that emphasize dividends.  Vanguard’s Equity Income Fund [symbol VEIPX] comes to mind [excellent example] with its competitive yield of 3.07% as of the close on Friday 3/12/20. 

GOOD HUNTING!      

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: 1.83(rounded)

As of  3-13-20
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  ..........23.54

Bond Rate...2.54%

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

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