Business Insider reached out to the smartest people in finance and asked them for what they considered to be the most important chart of the year.
Jack Bogle, pioneer of the index fund, sent us this classic.
It’s of the Dow Jones Industrial Average’s price-book ratio, a measure that popularised by Ben Graham, the godfather of valuation.
Book value is the difference between a company’s assets and liabilities. The lower the price-book value, the cheaper.
However, this does not mean you should only invest with the expectation that this measure will immediately revert to its mean.
In fact, this measure (and many other valuation measures) will drift from long-term averages for long periods of time. It’s further proof that markets will be irrational longer than you can stay solvent.