Saga of Financial Markets


Last updateSat, 29 Jul 2017 12am

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Rule of 20

Traders used "Rule of 20" as a benchmark to judge the appropriate value of p/e of the market. According to "Rule of 20", the market p/e = 20 - (inflation rate).


The 'Rule' broke down in 1990s when p/e ratios exceeded 20, but the idea that higher inflation should lower the multiple paid for companies' earnings remains valid.

Source:  Financial Times, John Authers, 2008-07-02, "Time for Chindia?"