Today [08/15/07], the Graham-Dodd approach produces a very different picture from the one that Wall Street has been offering. Based on average profits over the last 10 years, the P/E ratio has been hovering around 27 recently. That’s higher than it has been at any other point over the last 130 years, save the great bubbles of the 1920s and the 1990s. The stock run-up of the 1990s was so big, in other words, that the market may still not have fully worked it off.

At noon today [10/10/08], after several gyrations in the morning, the Standard & Poor’s 500-stock index was at about 870. That meant the five-year p-e ratio was just below 12. (The corporate earnings data isn’t all available yet, so this is an estimate.) It was last that low in late 1985. Over the past 100 years, the average p-e has been about 15.5.

If you use a 10-year p-e instead, stocks look somewhat more expensive — the [current 10-year] ratio is 14, the lowest since 1988 but only a little lower than the 100-year average.

In August 2007, the 10-year price-earnings (P/E) ratio was 27.

In October 2008, the 10-year P/E ratio is 14, below the 100-year P/E (15.5) but above the "long-run average" for the depressions of the 30's and 80's (6).

-janelane, trying to make sense of my inferior 401k

Remembering a Classic Investing Theory - New York Times