INFLATION: Rule of 70 [Doubling Time]

Posted on February 18, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

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DOUBLING TIME

By Staff Reporters

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Whether you know it, or not, inflation is your biggest financial and investing enemy. Fortunately, the rule of 70 will tell you in how many years the value of money will be halved.

For example, you just need to divide 70 with the rate of inflation. So if the rate of inflation is 7%, then 70/7 = 10 years. Therefore, in 10 years, your 100 note will be worth 50.

Note: The phrase rule of thumb refers to an approximate method for doing something, based on practical experience rather than theory. This usage of the phrase can be traced back to the 17th century and has been associated with various trades where quantities were measured by comparison to the width or length of a human adult thumb.

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FINANCIAL: Rule of 20 Defined

Posted on December 15, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

A Dimensionless Number

By Staff Reporters

SPONSOR: http://www.MarcinkoAssociates.com

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What is the Rule of 20?

The Rule of 20 is a dimensionless number that adds the current 12-month trailing Price to Earnings Ratio to the annual change in an index of the annual consumer inflation rate. A reading below 20, while a market is trending lower, means that we could be near a bottom.

In the United States, the most common index used is the broad-based S&P 500, and CPI-U is used as a proxy for inflation.

The Rule of 20 is purportedly a rule from Peter Lynch. In chapter 39 of Graham and Dodd’s seminal Security Analysis, they mention: “We would suggest that about 20 times average earnings is as high a price as can be paid in an investment purchase of a common stock” … with no mention of inflation.

Lynch’s formulation attempts to factor the ‘gravity’ of interest rates into the fair value of a stock. And, as you can see, the measure has fluctuated quite a bit. However, it has returned to roughly the 20 level repeatedly.

MORE: https://dqydj.com/sp-500-rule-of-20-calculator/

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