Thursday, February 21, 2013

Additional Plots on French Breakpoints as Valuation

I feel like there might be some merit in Slightly Different Measure of Valuation using Ken French’s Market(ME) to Book(BE) Breakpoints by percentile to offer an additional valuation metric for US stocks.  I thought some additional plots might help me flesh out the concept.  This plot struck me as particularly helpful.

From TimelyPortfolio

In the next iteration, I hope to add a look at prospective drawdown or returns.  However, I struggle since the last 30 years all have basically exhibited historical overvaluation.  Since 1926, no period of overvaluation has lasted longer than 14 years except the last 30.

Thanks to the post from which helped me use much more appealing colors than the default lattice set.

R code from GIST: