BASED on BV’s historical record, the stock market trades in the vicinity of intrinsic value about half the time. The rest of the time the market is either overvalued or undervalued.
Overvaluation occurs during periods of new era thinking – especially the thinking that investors can get something for nothing. Undervaluation marks the periods of gloom that occur in the inevitable aftermath of these bubbles.
These charts provide a clear picture both of normal conditions and pronounced deviations from normal. The long-term view back to 1919 uses monthly data to calculate the median BV. The more recent time frame uses weekly data from 1962, producing slightly different results.