Right pricing and patience lead to good returns

The valuation – or price if you prefer – is perhaps the most important factor we take into account when investing in the stock market. The US stock market is now enjoying its eighth consecutive boom year. That is why the fundamental analysis of underlying values is so important in order to ensure that substance and not air is priced into the stock prices. Some investors – index managers – try to avoid the task of assessing the value of individual companies by buying the entire investment universe which consists of both expensive and cheap companies. Others blindly focus on mathematical factor models.
The graph below shows the rolling ten-year returns for the US S&P 500 index. This time series is combined with Professor Robert Shiller's 10-year cyclically adjusted price/earnings.