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How to Value Shares and Outperform the Market by Glenn Martin

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8. Using the System’s Market Valuations as Buy and Sell Signals

The intrinsic valuations of the FTSE100 as a percentage of the market price can be used as buy and sell signals. The key question is: What percentage valuation is a buy signal and what is a sell signal?

Obviously the more extreme the underpricing or overpricing of the FTSE100, the stronger is the respective buy or sell signal. However, if you wait for a very strong signal, you will find very few buying or selling opportunities.

Extreme signals

For example, you may set your sell signal at a 70% valuation. However, since 1984, using the 2% default for real dividend growth, you will only have found two sell signals. But on both occasions the subsequent fall in the market was ...

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