The Valuation School ->

EXPLAINED
RULE OF 20
El
*
. (H
"-
apply Nifty
↑
a ?)
to

7
Ms [By Peter Lynch)
Goodmorning !
I
recently came across a

wonderful metric invented by

Peter
Lynch Sir (also creator of
PEG Ration
bubble
It helps to
identify the

in markets
wis
go -
.
 -
let's understand some basics first .

- Interest rates act as

gravity
to valuation of equity stocks .

Att rate= Lower valuations

-

Higher
-

↳
Bond attractice

mathematically also
they are Inversly
proportional
Peter Lynch Sir deviced Rule of 20
is
undervaled
identify if
To market

ar not .

market
Rule of 20 If sum of
->
PE Ratio and Inflation
says
is us than 20-

markets are cheap

it's simplify (Example)
PE Ratio
of S2p500 is .
Say
-

- current Rate
of Inflation M
7 %
-
-
2

- Sum
of these two-
M
-
22 .
2
&

-
since its more than 20 .

the markets are overpriced .

 -

This indicator is so
popular &
included
effective that bloomberg
a chart to track markets &

->
overvalued
fairly
valued
->
-> under
valued .

-
 Let's try it an
Nifty 50 ·

- current PE Ratio -> 22 .

8

current Inflation -> 1 4

.
-

--

30 2
its more
:

t
since
than
20 ;
are
the
stretched .

markets
Rule
what's the fair PE as per this
?
= 20-7 .

4
=

1Ratio
 not work in India
why this
may
and other
emerging markets
?
-
Due to
different Inflationary
conditions .

markets
emerging higher
-
have

Inflation .

So
may
be mule of 23124125
-

....

could work
But the impact of Inflation
on market valuations is so

beautifully captured in this rul .

its best
-

simplicity at .

it too !
Hope you enjoyed
↳d? something New

this others
REPOST - to help
SAVE - For Future Reference
follow - for premium finance
content .

I
taught
financial
modeling
youtube from
scratch .
Do checkout
S
an

valuation school
*
.the
⑦
&
↳ ...