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An indicator of fair value based on bond yield and the growth in company profits, that shows impressive consistency over very long time spans.

Visitor: There is more to valuing shares than long-term bond yields. Where do profits come in?

RouteMaster: Indeed. We have another type of chart that combines the two. This rearranges the PE formula to calculate Fair Value for shares by taking into account inflation and and long-term bond yields, while also cyclically-adjusting EPS.

It doesn't matter if you don't fully grasp the mechanics. Investors RouteMap is built so you can easily understand the conclusion in a chart. In this case it is that these two indicators explain the stock market's behaviour remarkably well over a very long time, and suggest that shares are far too cheap at the time when this sample chart was originally published.

Incidentally have you spotted our colour coding – indexes are white, variables are yellow (and light green) and Best Guesses are orange (and pink), while buy & sell signals are red arrows.

This strategy is very robust because it represents a consistent way of explaining markets ranging over half a century, including the forecasts. This means that it can take into account both economic booms and recessions, strong and weak currencies as well as rising and falling inflation and all phases of the generational cycle.