Tags: Bogle | PE | stocks | S&P 500

Bogle: Watch S&P 500 P/E Ratio to Determine When Stocks Are Overvalued

By    |   Tuesday, 11 November 2014 01:38 PM

While the S&P 500 index and the Dow Jones industrial Average have again reached record highs this week, stock aren't overvalued yet, says Jack Bogle, founder of The Vanguard Group.

And how will we know when they are?

"Using the S&P 500, 20 times estimated future operating earnings," he told CNBC. "That's a good warning sign" that "the market is on the high side." But until then, Bogle's a bull. "It's all in the math," he said.

The trailing 12-month price-to-operating-earnings ratio for the S&P 500 stands at 17.7, according to VectorGrader based on Standard & Poor's data. The forward price-earnings ratio for the index, including non-operating earnings, registered 16.7 Friday, according to Birinyi Associates.

Meanwhile, Bogle reiterated his support for index funds. Though theoretically actively managed funds can provide superior return and safety, they charge higher fees. "And funds, on average, stay 95 percent invested in stocks," Bogle noted.

"Our Vanguard 500 Index fund delivers the market return less 5 basis points. So mutual funds that are charging 1 percent or 2 percent; they just can't compete."

His argument is buttressed by new data from Bank of America. Only 18 percent of U.S. actively managed, large-cap stock funds outperformed the Russell 1000 index of large-cap stocks for the first 10 months of the year, according to BofA, the Financial Times reports.

That was the worst showing for active managers in a decade. Since BofA began tracking the numbers in 2003, only once have more than 50 percent of active managers beaten the index — in 2007.

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While the S&P 500 index and the Dow Jones industrial Average have again reached record highs this week, stock aren't overvalued yet, says Jack Bogle, founder of The Vanguard Group.
Bogle, PE, stocks, S&P 500
257
2014-38-11
Tuesday, 11 November 2014 01:38 PM
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