Cl.9. Figure 1.2plots a price-to-value ratio (PIV) for the Dow Jones Industrial Average

(DJIA) from 1979 to 1999. APN ratiois a metricthatcompares themarketprice(P)

to anestimate of intrinsic value(V).Theintrinsic valueinthe figure isbasedontechniques that will be discussed in this book. Buthowit is calculated is not important for the following questions:

a. Up to 1996, the PN ratio fluctuated around 1.0. What do you make of this pattern?

b. Ifyouhadpurchased the Dow 30stocks eachtimethePN ratiofellbelow 0.8and hadsoldthemeachtimethep/V ratioroseabove1.2,wouldyourinvestment strategy haveperformed well?

c. Whatinterpretation do you put on the continuing upward movement of the PN ratioafter 1995?

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B & Jae-39 Jan-80 08 1.2 14 2 13 1.6 Jan-8 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 J-89 J-50 Jan-91 Je-92 Jan-93 Jan-04 Jan-95 Jan-96 Jan-97 Jen-98 Jen-99