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Back in May-June 1988 the Harvard Business Review published an article titled
"The Smart Crash of October 19th." It was based on a Graham formula:
V = EPS(8.5 +2*g)4.4/Yaaa where V is a company's intrinsic value, EPS is the
company's last 12 month earnings per share, g is the company's long-term
earnings growth estimate, and Yaaa is the yield on AAA corporate bonds. The
constant, 8.5 reprenents the appropriate P-E ratio for a no-growth company as
proposed by Graham. The average yield of highgrade corporate bonds in 1962,
when this model was introduced, was 4.4, and so the last expression in the
formula is an adjustment factor for changing interest rates. To apply this
approach to a buy-sell decision, each company's relative Graham value (RGV)
can be determined by dividing the stock's intrinsic value V by it current
price P: RGV = V/P. An RGV of less than one indicates an overvalued stock,
while an RGV of greater than one indicates an undervalued. stock. The reason
this is of significance at the present is that this RGV value forecast the
crash in 1987 and predicted the price floor for major indexes and individual
large cap blue chip stocks.
Another timing perspective is an astro chart from another rter, Don Thompson
that has October 16th as a day of remembrance. The 16th is also an energy
point day in the October issue of Nature's Pulse.
BobR
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