Stocks VS Bonds

 DYI:  Be very careful with Ben Graham’s formula that under any reasonable conditions – [average market level] – would warrant purchase of stocks on a whole sale basis exampled by an S&P 500 index fund.  Old Ben states not to purchase stocks at the “upper levels of the market.”  Today stocks historically as measured by valuations are absolutely beyond the upper levels but are priced some where in the upper reaches of the stratosphere! 

The only reason for stocks to best bonds is due to the Fed’s insane sub atomically low interest rates.  If you are determined to purchase stocks take a look at Equity Income funds that is in most 401k’s.  Vanguard’s Equity Income Fund symbol VEIPX dividend yield (at the time of this post) is 2.94% as compared to the S&P 500 at 1.71% - [72% increase in yield].  For those of you who are Vanguard investors take a look at their High Dividend Yield Index Fund symbol VHYAX that spouts a current yield at 3.59% - [110% increase compared to the S&P 500 index].  Both of these funds and especially the high yield during any bull market will lag behind but when the bear does appear will suffer less.      

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: 1.50(rounded)

As of  9-1-20
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  ..........32.21
Bond Rate...2.27%

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