Is the Market OverValued? | Hal Heaton
About Hal Heaton
Hal Heaton is a Professor of Finance at the BYU Marriott Graduate School of Business where he teaches advanced courses in finance and capital markets. Before joining the faulting at BYU, Hal worked at Boston Consulting where he dealt with strategic planning issues for large firms. He has also served on the Finance faculty at the Harvard School of Business. He holds an MBA from Brigham Young University and both a MA in Economics and Ph.D in Finance from Stanford University.
Interview Transcript:
Hal Heaton
Well, there are certainly several journalists in the media who claim that as overvalued, they tend to be looking at a couple of metrics. The first one is just the simple P E ratio, the median P E ratio, which is about 20. Today is on average, it’s been about 17. And historically, if it ever goes above 17, the returns following that period of time tended to be below average. And so they conclude that it’s overvalued. A number of economists use what’s called the cape, the CA P E, or the cumulative average P E ratio, typically, it’s 1718, somewhere in that range. Today, I think it’s mid 20s, somewhere. So certainly by those two measures, we have an overvalued stock market. On the other hand, interest rates today are really, really low. So if you’re looking at what P E ratio should be, given the low interest rates, they should be very high because if you look, for example, the price of a bond, say it’s $1,000 divided by the interest that that bond pays, and if it’s just a very small number, that ratio can be very large. So a number of people think that we are fully priced, but not overpriced, given the level of interest rates.
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Hal Heaton is a Professor of Finance at the BYU Marriott Graduate School of Business where he teaches advanced courses in finance and capital markets. Before joining the faulting at BYU, Hal worked at Boston Consulting where he dealt with strategic planning issues for large firms. He has also served on the Finance faculty at the Harvard School of Business. He holds an MBA from Brigham Young University and both a MA in Economics and Ph.D in Finance from Stanford University.
Alan is managing partner at Greenstein, Rogoff, Olsen & Co., LLP, (GROCO) and is a respected leader in his field. He is also the radio show host to American Dreams. Alan’s CPA firm resides in the San Francisco Bay Area and serves some of the most influential Venture Capitalist in the world. GROCO’s affluent CPA core competency is advising High Net Worth individual clients in tax and financial strategies. Alan is a current member of the Stanford Institute for Economic Policy Research (S.I.E.P.R.) SIEPR’s goal is to improve long-term economic policy. Alan has more than 25 years of experience in public accounting and develops innovative financial strategies for business enterprises. Alan also serves on President Kim Clark’s BYU-Idaho Advancement council. (President Clark lead the Harvard Business School programs for 30 years prior to joining BYU-idaho. As a specialist in income tax, Alan frequently lectures and writes articles about tax issues for professional organizations and community groups. He also teaches accounting as a member of the adjunct faculty at Ohlone College.