maandag 18 mei 2015

James Tobin: Q Ratio

The Q ratio of James Tobin is the ratio between the total value of stocks and the total value of underlying assets such as plants, inventory and equipment.

When this ratio goes above 1, stocks are overvalued. A rising ratio indicates that money isn't going into developing plant and equipment. Instead we have an engineered equity bubble forming.

For more info, go to this Zerohedge article.

As of 2015, we are clearly overvalued and a correction will be a matter of time.
 

Another way to look at this is to calculate the annualized equity return based on this formula: (equity+debt)/market value of equity. The black line shows the annualized stock return that investors earned over the subsequent 10 years.


1 opmerking:

  1. prof premraj pushpakaran writes -- 2018 marks the 100th birth year of James Tobin!!!

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