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its a relative measure - meaning it’s never been higher than it is now specifically it’s the ratio of the wilshire 5000 over GDP
by tempsy 6y ago
its a relative measure - meaning it’s never been higher than it is now
specifically it’s the ratio of the wilshire 5000 over GDP
- perl4ever 6y agoI don't understand how you can draw any conclusion from the ratio. Not all of GDP comes from the public companies in the wilshire 5000. If we pretend it did, wouldn't 170% be a P/E ratio "in disguise"? In which case 1.7 is very, very low as P/Es go. It seems to me that 170% is clearly not evidence of the stock market being overvalued, while not being clear evidence it is undervalued either. If you disagree, what tells you the appropriate number? It seems like not knowing the portion of the economy outside the stock market, and whether it has gotten bigger or smaller, rules out knowing what the ratio means. Another thing I just thought of is that public companies draw on the global economy, but the "D" in GDP is domestic. And yet another thing I thought of is, what about the Net Domestic Product? TIL there is such a thing, although it isn't tremendously smaller than GDP. It appears substituting it would bring the ratio closer to 200% or 2:1.
- jmalicki 6y agoGDP is much more like revenue than earnings... but 1.7x price/sales ratio is still on the low end.