Current price of S & P 500 of 2,057 found here: http://www.multpl.com/s-p-500-historical-prices
From the article:
--Markets rarely trade at “fair value”. I like to think of it as a risk/reward measure providing an investor a totally objective reading of where the US equity market trades versus the long-term relationships.“This analysis is dated March 12, 2016. However the calculated fair value of the S&P 500 index is not affected by the precise date of the analysis and our fair value estimate of 1475 to 1603 with a mid-point of 1539 will not change until at least after the next set of quarterly earnings numbers becomes available, and even then will not change much.”
--Investors might use the “fair value” reading to calculate the upside/downside from the current price and determine if the S & P 500’s current valuation level offers them a “margin of safety”.
--This may also help him/her appreciate where this fits according to their need and ability to take risk.
--Buffett has occasionally stated he likes a “margin of safety” value of + 25% percent, but it might depend on how confident the investor is about the projected earnings growth rates.
--If highly confident, an investor might accept a smaller "margin of safety".
--But if a risk-averse investor is less confident, he/she might want a "margin of safety" that is larger.
The IF’s analyst’s disclaimer:
”Caution is warranted because the S&P 500 can sometimes spend years in an over-valued or an under-valued-state. But ultimately, as we have seen in the early 2000’s crash, and the crash of 2008 and early 2009, valuation does correct itself. (And sometimes over-corrects to the downside).”
Investor’s Friend page: http://www.investorsfriend.com/s-and-p- ... valuation/
Before considering any actions around allocation changes, here’s a review of sage wisdom from our mentor:
"There is a third option, but only for bold and self-confident investors. It does not abandon the "stay the course" principle, but it allows for a mid-course correction if stormy weather threatens on the horizon. If rational forecasts indicate that one asset class offers a considerably better investment opportunity than another, you might shift a modest percentage of your assets from the class judges less attractive to the class judged more attractive. This policy is referred to as tactical asset allocation. It is an opportunistic, transitory, aggressive policy that - if skill, insight, and luck are with you - may result in marginally better long-term returns than either a fixed-ratio approach or benign neglect.
It's grand to possess skill and insight, though all of us tend to overrate our abilities in both areas. But luck, too, plays a role. Many investors are right, but at the wrong time. It does no good to be too early or too late. Tactical asset allocation, if the strategy is to be used at all, should therefore be used only at the margin. That is, if your optimal strategic allocation is 65 percent stocks, limit any change to no more than 15 percentage points (50 to 80 percent stocks), and implement the change gradually. The prospect of having the skill, insight, and luck to eliminate your stock position overnight and restore it "when the time is right" is, in my opinion, patently absurd. Cautious tactical asset allocation may have a lure for the bold. Full-blown tactical allocation lures only the fool.
What might dictate moderate shifts in tactical asset allocation? One example: concern that stocks are substantially overvalued relative to bonds. Then, investors with conviction, courage, and discipline might benefit from a bow toward caution. I say "bow", not "capitulation." In an inevitably uncertain world, the reduction should not exceed 15 percentage points in your equity position. If you have 65 percent of your portfolio in equities, retain at least 50 percent; if 50 percent, at least 35 percent, and so on. A little caution may represent simple prudence, and, if you are relatively risk-averse, may enable you to sleep better, a blessing that is hardly trivial. One doesn't have to have investment experience to to recognize the wisdom in this saying, from a remarkably parallel field: "There are old pilots and there are bold pilots, but there are no old bold pilots."
- John C. Bogle, Common Sense on Mutual Funds