Price Drops When P/E10=20

P/E10 has fallen below 22. Soon it will be 20. The Scenario Surfer tells us what to expect.

Previous Findings

When starting from a P/E10=26 (Bear Market), P/E10 always fell to 15. But it only fell to 10 about 50% of the time.

Data

I took these data using the Scenario Surfer with a P/E10=20 (Bear Market).

Run 1.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 1.
P/E10=10 first in Year 3.

Run 2.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 3.
P/E10=10 first in Year 7.

Run 3.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 5.
P/E10=10 first in Year 6.

Run 4.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 7.
P/E10=10 first in Year 27.

Run 5.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 1.
P/E10=10 first in Year 4.

Run 6.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 3.
P/E10=10 first in Year 5.

Run 7.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 6.
P/E10=10 first in Year 12.

Run 8.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 3.
P/E10=10 first in Year 4.

Run 9.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 5.
P/E10=10 first in Year 10.

Run 10.
P/E10=20 (Bear Market) at Year 0.
P/E10=15 first in Year 8.
P/E10=10 first in Year 11.

Data Summary

P/E10 fell to 15 by Year 5 in 7/10 times.
P/E10 fell to 15 by Year 10 in 10/10 times.

P/E10 fell to 10 by Year 5 in 4/10 times.
P/E10 fell to 10 by Year 10 in 7/10 times.
P/E10 fell to 10 by Year 15 in 9/10 times.
P/E10 fell to 10 by Year 20 in 9/10 times.
P/E10 fell to 10 by Year 25 in 9/10 times.
P/E10 fell to 10 by Year 30 in 10/10 times.

Conclusions

We can expect P/E10 to fall to 15 within a decade. We cannot be assured that P/E10 will fall below 10 that fast.

Those planning on a delayed purchase can look forward to buying stocks within the next 5 to 8 years. They should not insist that P/E10 fall all the way to 10 before buying.

Have fun.

John Walter Russell
September 3, 2008