The valuation chart is mislabeled. The line sloes downward to the right as the valuation gets less. As you stated, it is now a 33% discount. That is the ratio of the S&P 600 - the numerator - to the S&P 500 - the denominator. I agree with your conclusion. I the past two weeks the Russell 2000 has begun to outperform all the broad large cap indices. But to be conclusive it will have to continue into early 2024 after the distortions of tax loss selling and the frequent subsequent dead cat bounces are in the rear view mirror.
Excel charts are a pain. The 1 on the axis is the baseline. 1.15 would represent a 15% premium. It's at 0.67 today, or a 33% discount. Either way, the discount is huge. The scary part is that roughly a third of Russell 2000 companies are "zombies." The S&P 600 has much cleaner balance sheets as an index.
Are there many world class companies trading at reasonable valuations at today's interest rates, or are you saying that today's valuations will seem reasonable once interest rates decline?
There are plenty of great businesses trading at reasonable prices today. (I plan to write several of them up in the coming weeks.) Of course, if things play out the way I expect and the market pulls back next year, we'll get even better valuations. But I don't have a crystal ball, so I don't recommend sitting in 100% cash waiting for the crash to come. If anything, it'll be a great opportunity to dollar-cost average.
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The valuation chart is mislabeled. The line sloes downward to the right as the valuation gets less. As you stated, it is now a 33% discount. That is the ratio of the S&P 600 - the numerator - to the S&P 500 - the denominator. I agree with your conclusion. I the past two weeks the Russell 2000 has begun to outperform all the broad large cap indices. But to be conclusive it will have to continue into early 2024 after the distortions of tax loss selling and the frequent subsequent dead cat bounces are in the rear view mirror.
Excel charts are a pain. The 1 on the axis is the baseline. 1.15 would represent a 15% premium. It's at 0.67 today, or a 33% discount. Either way, the discount is huge. The scary part is that roughly a third of Russell 2000 companies are "zombies." The S&P 600 has much cleaner balance sheets as an index.
Are there many world class companies trading at reasonable valuations at today's interest rates, or are you saying that today's valuations will seem reasonable once interest rates decline?
There are plenty of great businesses trading at reasonable prices today. (I plan to write several of them up in the coming weeks.) Of course, if things play out the way I expect and the market pulls back next year, we'll get even better valuations. But I don't have a crystal ball, so I don't recommend sitting in 100% cash waiting for the crash to come. If anything, it'll be a great opportunity to dollar-cost average.