The
financial media from time to time reports when they feel stocks are
cheap or not, based on a comparison with bonds.
They're
usually confused because the bonds in this comparison are always
Treasurys and not corporate, which have higher yields and contain an
element of risk that Treasury bonds never have. So the comparison is
skewed.
Their actual comparison is made with the earnings yield on stocks and the earnings yield on Treasurys. The comparison is on a relative basis over the years. Trying to determine whether this strategy is the key to success is a problem, however, when you look at results of its past use. (See the Earl J. Weinreb NewsHole® comments.)
Their actual comparison is made with the earnings yield on stocks and the earnings yield on Treasurys. The comparison is on a relative basis over the years. Trying to determine whether this strategy is the key to success is a problem, however, when you look at results of its past use. (See the Earl J. Weinreb NewsHole® comments.)
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