Stock market crash? or is this the bottom? Catching a falling knife? Or value? This is a look at a historic rule called the ‘Rule of 20’ and how stocks fare in comparison. I discovered this listening to Peter Lynch and shocked at how simple and powerful this concept is. This is a journey for me to understand how to invest in the wake of inflation and changing consumer behavior.

#WMT #PeterLynch #ruleof20 #sp500 #aapl #msft

These two videos are amazing.
Peter Lynch on Charlie Rose 1993:
Peter Lynch on Charlie Rose 1997:

00:00 Intro
01:28 Rule of 20 Explained
02:07 Wal Mart
02:41 2011 Was a BUY
03:26 SP 500 History
03:55 Why has it been broken?
05:29 Current Valuation
07:40 Conclusion

#financialeducation
#federalreserve
#bullwhipeffect
#stock market for beginners
#investing for beginners…(read more)

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Recently, I came across a concept known as the ‘Rule of 20’ in the world of inflation investing. At first, I was skeptical about its effectiveness but after delving deeper into the concept, I must admit that it left me completely mind-blown.

So, what exactly is the Rule of 20?

In simple terms, the Rule of 20 is a tactic used by investors to determine whether the current stock market valuations are in line with the prevailing economic conditions. The rule comes in handy especially when dealing with high inflation rates that have a significant impact on stock prices.

The Rule of 20 uses a simple calculation by adding the current price-to-earnings ratio (P/E) of the stock market to the inflation rate. If the result is below 20, it indicates that the market is undervalued and presents a buying opportunity. Conversely, if the result is above 20, the market is overvalued and a correction is expected.

For instance, let us assume the P/E ratio is 15, and the current inflation rate is 6%. By adding the two figures (15+6=21), the result is above 20, indicating an overvalued market.

The beauty of the Rule of 20 is its simplicity yet effectiveness in gauging the market condition. It eliminates the need for complex calculations, making it accessible to even novice investors.

Another fascinating aspect is that the rule has proved to be incredibly accurate over the years. According to data from the Federal Reserve Bank of St. Louis, the Rule of 20 has accurately predicted stock market movements at least 80% of the time.

However, it is worth noting that the Rule of 20 is not a foolproof investment strategy. It is merely a tool that investors use in conjunction with other valuation metrics to make informed investment decisions. Also, investors must be cautious in the current market environment, where inflation rates remain elevated, and the stock market valuations are at all-time highs.

In conclusion, the Rule of 20 is a simple yet powerful tool that can help investors navigate the complex world of inflation investing. It is a reliable indicator of market conditions and has a proven track record of predicting stock market movements. However, as with any investment strategy, investors must exercise caution and do their due diligence before committing their hard-earned capital.