Average is rare, does not stay the same, and slowly moves above and below where the average was.
Why does the real estate market report median price while the stock market reports mean valuation?
The 25 year average PE is going to rise because PE’s 25 years ago were less than the current 25 year average. This will continue for the next seven to eight years as the below average PE’s drop out of the current 25 year average measurement. So, above average PE’s now will be below average PE’s in a few years with the same earnings (no earnings growth). This is also true for market returns. The median 10 year return for the last 70 years is above 10% and below average for the last 18 years prior to 2019. Looking forward – if the market does not continue rising, we will have below average PE, below average 10 year return, and above average earnings yield relative to other investments if earnings just stay the same. We believe it’s not too late to be above average if you buy stocks now.