Time flies, as the saying goes. Though hard to believe, the stock market bull run reached its third year anniversary this past Friday, March 9th. Three years earlier, the S&P 500 closed at a mere 676 points, though hitting 666 intraday on March 6th the previous week. Today, the S&P 500 is at 1370, which corresponds to a 103% appreciation (excluding dividends paid along the way) since the bottom.  This represents the strongest 3 year gain in history. 

Despite the price appreciation, it slipped by commentators and strategists alike that the market became even cheaper amid the height of the European debt crisis just five months ago in October 2011. 

Although price is what you pay, value is what you receive. The value for the S&P 500 is computed based on the earnings of the 500 companies that comprise the index. On March 6, 2009, the S&P 500 traded at 13.5x its last four quarters worth of earnings and 11.4x its next year’s projected earnings. By comparison, on October 4, 2011, the S&P 500 traded at an even cheaper 11.7x trailing earnings and 10.7x next year’s earnings.


Since October 4, the S&P 500 has rallied 27%.

With a buyer and seller standing on every side of a trade, we know with certainty that there were panic sellers on October 4. Clearly, this was an unwise transaction to pursue. Legendary value investor Benjamin Graham once said that “The investor’s chief problem – and even his worst enemy – is likely to be himself.” 

Panic selling often results in an opportunity loss. Opportunistic buying from such panic sellers, however, is a good way to reap future reward. 

In case you’re wondering, the S&P 500 trades historically at 15x next year’s earnings. At today’s 13.1x valuation, the market is still cheap by historical standards.