Wednesday, December 17, 2008

Tobin's "q" At 1965 Level

According to Argus Research Tobin's "q" has reached its lowest level since 1965. Argus notes:

"When the stock market trades at a 'discount' to the replacement cost of its assets, the market is inexpensive, or cheaper to buy than build. This discount possesses ‘q’ ratios that are less than 1.0. Conversely, when “q” exceeds 1.0, the market trades at a premium to its replacement cost. The runup from 1996-2000 had ‘q’ approaching the unthinkable value of 2.0...The long-term average for Tobin’s ‘q’ is 0.76."

I wrote an earlier post on Tobin's "q" in June that contains additional background information on this ratio.


Tobin’s ‘q’ at 0.76 in QIII ($)
Argus Research
December 17, 2008


Anonymous said...

Bill Gross focused his last newsletter on the Q ratio, you may find his thoughts interesting...

Anonymous said...

Does the author mean to say Tobin's Q is its 1985 level? Tobin's Q was much lower in '82 than in '65.