Is the Market Overvalued? Interesting Thoughts from Fortune’s John Cassidy

April 2, 2014

I found this tidbit from John Cassidy’s latest column in Fortune to be interesting:

“A couple of months ago I mentioned the cyclically adjusted price/earnings (CAPE) ratio, which was flashing amber. Another warning sign is provided by the so-called Q ratio, which compares the market value of corporate assets with their replacement cost, and which was developed by the late James Tobin, a Yale economist. As of March 6, when the S&P 500 closed at 1,877, the Q ratio was indicating that the market was overvalued by 76%, says Andrew Smithers, a London-based analyst who helped popularize the measure. The only times the market has been more overvalued with the late 1920s in the late 1990s.”

My wife and I are still in the accumulation phase and I’m not one to time to try to time the market. If the market comes crashing down, I simply won’t look at the 401(K) balance for a few months. Ignorance is bliss.