The will eventually confess …

“If you torture the numbers long enough, they will eventually confess,” goes a famous quote often used in statistics.

It is frequently argued that every individual valuation metric has its flaws and that no single measure can properly tell us how expensive the stock market really is. That is a fair point. Taken in isolation, each metric has weaknesses.

However, as Ryan Lemand from Neovision Wealth Management recently pointed out, when you look at a blended set of valuation measures, the conclusion is difficult to ignore: US equity markets are as expensive as they have been in more than 100 years. Period.

Valuations alone are never a reliable indicator of where markets will go in the short term. They can remain stretched for longer than expected. But valuations are a very important indicator of the level of returns investors can reasonably expect over the next 10 years when they enter the market at today’s levels.

The message is not to avoid equities. The message is to be selective.