Mr. Market And A Valuation Of The Dow Jones Industrial Average

Mr. Market’s Mental State

Legendary value investor Benjamin Graham is probably most famous for his Mr. Market parable. In the story, an investor is greeted each day by Mr. Market, who offers to purchase the investor’s stocks. Every offer is different, and sometimes the price is insanely high, sometimes it seems fair, and other times it is clearly too low. But one thing remains the same – the intrinsic value of the investments does not change. As a result, the investor is left to decide when to buy and sell based on the relationship between the intrinsic value and the price Mr. Market is offering.

All value investors today should keep the analogy in mind, and implement the overall concept. To assist in that goal, ModernGraham has various tools available, and the infographic shown above is one of them, displaying a summary of the valuations of 551 companies reviewed by ModernGraham.

This month, out of the 551 companies reviewed by ModernGraham, the average PEmg ratio (price over normalized earnings) is 22.25 and the average company is trading at 79.54% of its intrinsic value. Last month, the average PEmg ratio was 22.87 and the average company was trading at 82.61% of its intrinsic value.

The highest PEmg average we have seen while tracking this information was 26.17 in December 2014 while the lowest PEmg average was 22.25 in February 2016. The highest average intrinsic value was 93.48% in January 2015 and the lowest average intrinsic value was 79.54% in February 2016.

Month Average PEmg Average % of value Defensive % Enterprising % Speculative% Undervalued % Fairly Valued% Overvalued% August 2014 24.36 90.57% n/a n/a n/a n/a n/a n/a September 2014 25.37 93.37% n/a n/a n/a n/a n/a n/a October 2014 24.29 90.24% 12% 35% 53% 31% 21% 48% November 2014 25.32 90.61% 12% 35% 53% 29% 21% 50% December 2014 26.17 92.28% 11% 34% 55% 28% 23% 49% January 2015 25.63 93.48% 10% 34% 55% 30% 20% 50% February 2015 25.79 92.72% 10% 35% 55% 33% 19% 49% March 2015 25.79 88.03% 10% 35% 55% 31% 19% 49% April 2015 25.64 86.18% 9.9% 35.2% 54.9% 32.1% 19.4% 48.5% May 2015 25.17 86.64% 9.1% 36.1% 54.8% 32.1% 20.4% 47.4% June 2015 25.47 86.43% 8.7% 34.7% 56.5% 30.0% 21.2% 48.8% July 2015 25.24 85.65% 9.6% 33.1% 57.3% 30.9% 19.3% 49.6% August 2015 25.08 86.79% 9.8% 32.7% 57.5% 29.5% 21.0% 49.5% September 2015 23.2 82.45% 9.4% 32.6% 57.9% 35.7% 18.9% 45.5% October 2015 22.95 81.80% 10.5% 31.7% 57.8% 35.5% 18.7% 45.8% November 2015 23.97 84.84% 10.1% 32.2% 57.7% 32.0% 19.2% 48.7% December 2015 23.27 84.55% 10.6% 31.5% 57.8% 33.0% 17.8% 49.2% January 2016 22.87 82.61% 10.9% 30.8% 58.3% 35.9% 16.8% 47.3% February 2016 22.25 79.54% 10.9% 30.7% 58.4% 36.7% 16.3% 47.0%