From the mid-1990s investors spurned orthodox ways of valuing shares. Such methods were deemed very old-economy. Lately, the idea that the rules have changed has been tested somewhat, and investors have been rediscovering old orthodoxies. But if they were hoping to find much reassurance, they will have been disappointed. Alan Greenspan, chairman of the Federal Reserve, famously drew attention to the American stockmarket's possible "irrational exuberance" in December 1996, when the Dow Jones Industrial Average stood at around 6,400. Not exactly chastened, the market went from there to 11,723 at its peak in January 2000. With much, though not all, of that rise now reversed, old-fashioned methods of valuation suggest that shares are still expensive by historical standards. If you use such methods to ask where the floor for Wall Street might be, the answer is that it could be far lower than the levels―beaten down as these may seem―that the market has touched of late.
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