Minding Your P/Es and Qs
From dshort.com:
The ten-year inflation-adjusted ratio of price to earnings has been a favorite long-term indicator of market valuation that I regularly update on this website.
Another ratio, less familiar and more tedious to calculate, was developed by economist and Nobel laureate James Tobin. Tobin's Q Ratio is based on the assumption that the combined market value of all the companies on the stock market should be about equal to their replacement costs. John Mihaljevic, who served as Professor Tobin's research assistant from 1996-98, assisted Tobin in developing a new Q estimation methodology and in periodically updating data related to the Q ratio. John continues to maintain the Q Ratio in an online subscription service at The Manual of Ideas. In addition to monitoring the Q Ratio for the aggregate US market, the service also tracks Q for the 1,000 largest US-listed public companies ranked by market value.
