The Nifty valuation analyzer now has rolling standard deviation(stdev) curves plotted along with the rolling average PE, PB and Div yield curves.
As pointed out by Ravi Vooda, the
- mean + stdev, and mean + 2*stdev,
- mean – stdev, and mean – 2*stdev
curves might give a better picture of the market valuation.
Here are some results
Nifty Div. Yield
Notice that the standard deviation is more sensitive than the average to time. That is changes more rapidly as the days advance. So while one can assume that the Nifty is dangerously overvalues when the PE and/or PB exceeds two standard deviations above the average, we must also recognise that the standard deviation and the average are changing with time. So our assumption could be wrong.
I would like to make it clear that my interest in such analysis is only to find out dangerous valuations. There is no point in either not investing or pulliing out when the Nifty breaches, say 22. As pointed out here
exiting at high PE is fine, but when do you re-eneter, the answer is whenever! So as far I am concerned, if I pull out at high PE, it is only for my emotional well-being and not for maximising returns.
(This is a heavy file. Graphs will take a moment to display).
Register for the Investor Workshop on Financial Planning and Goal-based investing at New Delhi
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google Plus and Pinterest
Do check out my books
You Can Be Rich Too with Goal-Based InvestingMy first book is now available at a 35% discount for Rs. 258. It comes with nine online calculators. Get it now. The kindle edition is only Rs. 199.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGet it or gift it to a young earner
The ultimate guide to travel by Pranav SuryaGet the pdf for ₹199 (instant download)
Free Apps for your Android PhoneInstall Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)