Massive Overvaluation of both Stocks and Bonds!

DYI:  Ben Graham’s ratio comparing the earnings yield of the market to bonds is correct that stocks will outperform bonds on a macro basis.  However due to massive overvaluation of both stocks and bonds the long term investor in this inflated market will end up losing less money in stocks as compared to their cousin bonds!   If you desire to dollar cost average into stocks – such as a 401k etc. – equity income funds would be the recommended tier of stocks as their dividend yield is comparable to bonds.  This will allow you a chance over the long haul – [depending on what initial valuation you predominately invest in] – beating returns on bonds and with a positive return!  DYI’s recommendation is Vanguard Equity Income Fund Investor Shares (VEIPX) with a current yield from dividends – (as of 1/31/21) – at 2.61%.  Starting yield is now greater than most investment grade – [as opposed to high yield or junk] – bond funds.

Supporting Video:   Why Grantham Says the Next Crash Will Rival 1929, 2000

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: 1.38(rounded)

As of  2-1-21
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  ..........33.82
Bond Rate...2.36%

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