I’ve posted Entry #212 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Warning Implicit in Outlier P/E10 Values Should Not Be Rationalized Away.
Juicy Excerpt: There’s a funny dynamic that governs our rationalizations for not taking P/E10 levels into consideration when deciding on our stock allocations. When the P/E10 level rises to high but not insanely high levels, we say that moderately high P/E10 aren’t really all that dangerous. When the P/E10 level rises to insanely high levels, we say that the results that logically follow from insanely high P/E10 levels are so absurdly bad that it is impossible that the P/E10 metric will continue to worksas well as the entire 140-year history of the market shows that it performs. If P/E10 worked as well as it appears to work, we never would have permitted things to get so out of hand, say the people who counseled ignoring merely high P/E10 levels on grounds that anything less than insanely high P/E10 levels were not worth worrying about.