Last Updated on August 7, 2016
Are the markets overvalued? Is the Nifty PE too high? Should I exit and re-enter later? Aided by ‘experts’ who advice ‘caution’, such questions are doing the rounds again. Here are some misconceptions and myths about the Nifty PE.
In a previous post on the relevance of the Nifty PE for the long-term investor, I had shown that exiting at high PE and re-entering at low PE does not guarantee loss-prevention or large gains! The spread in possible returns is too high.
I wrote, the case for not investing at high PE (~ 25) remains strong enough, whereas the case for investing only at low PE (< 15) has weakened, thanks to the wide range of returns possible.
Dumb me, I missed the obvious corollary:
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
If I exit at PE = 25, when do I enter? The answer is whenever!
So one could, and must argue, why exit in the first place if your goal is several years away?
Unfortunately, neither can we rely on past data (our market history is too short), nor can we invest without emotion. So for someone with considerable net worth, it is not a terrible idea to reduce equity exposure at 25 PE.
There is the danger that after exit the markets may create history and keep moving up but I think it is not such a terrible issue for a mature person.
With that out of the way, let us consider what Prof. Sanjay Bakshi writes in an article titled, “Keeping you out of trouble: your resolutions for 2009 and beyond”, he says
Resolution 1: You will avoid equities when they become historically expensive
Notice most of the data is centered around the dot-com crash. PE values from about 16 to 20 led to negative returns and not just 22.
Notice the small bunch of red points right in the middle of the so-called ‘bull run’. Related reading: Anatomy of a bull market
Then we have some points just before the 2008 crash and some points in 2010 when PE was close to 25.
A negative 3 year return and a PE of 22 or above occurred only 42.7 times out of 100! The rest of the times, the negative returns came when PE was between 15 and 22! Please don’t bet that a high PE implies a low return …. at least over 3Y!
Notice the spread in returns possible corresponding to the PE on the date of investment. Current PE is close to 22. So the blue box tells you what to expect or rather what not to expect.
Now to 5 year returns. There is not enough negative returns data available. All points in that bunch correspond to a PE greater than or equal to 24.5.
Meaning, if you stay invested for 5 years, current PE most likely does not matter!
🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author

Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!


Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Your Ultimate Guide to Travel
