It’s a long answer not because BV is particularly complicated, but for those who want to know the details, I thought a full explanation would help.
As I relate in the BV story, I didn’t set out to discover this accurate new way to determine the market’s intrinsic value. The metric was a side effect of my attempt to solve another problem, which was to find a reliable indicator to help investors recognize important tops and bottoms.
Later on, after a few years living with BV, I came to accept its limitations, indeed the limitations that all valuation yardsticks share.
I found that valuation is great background information, but it’s a so-so timing tool. BV can show you the big picture, and tell you where the market should be trading, but it can’t predict what the market will do this month or even this year.
Still, investors need to know what the market is worth, and when combined with trendlines and other market studies, BV is a powerful addition to the toolbox.
My name is Peter Brock and this site is a hobby of mine. It is a free service for information purposes only. It’s designed to point out those rare but significant occasions when the market trades at an extreme valuation.
I also publish a sister site, Lost Decades, which tracks the progress of the burst bubble we’re in now. I believe buy-and-hold investors are in for some slow times ahead.