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In January, I discussed something called “policy risk,” which continues as probably the least predictable component foreshadowing what has been a historic rise in stock market values over the past eight years.

How historic? Well, it’s the greatest sustained increase since 1928.

As for predictable components, we have the fact that the economy has been growing recently around 2 percent, and this is enough to prompt the Federal Reserve to seriously consider raising rates. Normally, this suggestion would have freaked investors out, because interest rates traditionally have been the largest single determinant of corporate profits.

But that was before companies were sitting on such huge hoards of their own cash. Compared to the past, it is not viewed as a detriment today. Instead, increasing rates this time is a strong signal that the economy is improving.

Which brings us to stock prices. The current price/earnings ratio of the S&P 500 index is what investors pay per share to generate $1 of future profits. The ratio is now at 22-to-1, while its five-year average has been 18-to-1. Long term (1900 to 2005), the ratio averaged 15-to-1. This number is subject to different definitions, so some measures have it as high as 26-to-1 currently.

Be that as it may, the number is currently high by any definition, so what this signals is that investors are counting on future increases in profits to support the higher than normal price they are willing to pay today.

Normally, the average P/E ratio has a built-in expectation of average growth in the economy or at least a continuation of past performance. Today’s higher-than-average ratio is attributable to the so-called “Trump bump,” which presupposes (on the part of investors) that the economy will now grow by more than the current 2 percent — and possibly by as much as the promised 3 percent if the inflated P/E means anything.

For this to happen requires a stretch, as we are already at full employment, and companies have not been inclined to invest much of their cash in creating more jobs and/or products beyond what has sustained the current growth. Also, increases in productivity can boost growth but this component has leveled off from the leaps reflected in the earlier days of interconnection and automation.

Bottom line: We may have to be content with 2 percent growth and stock prices that eventually come to terms with the absence of that huge economic boom.

On the other hand, there is a use for all that cash that doesn’t get applied to economic growth. A company can use its stash to buy back shares of its stock — a process that increases the value of the remaining outstanding shares because the company’s ownership is now spread out over fewer shareholders. This explains why “asset inflation” has been so much greater than the cost of living inflation or any increased percentage of economic growth.

That practice shows no signs of abating, since senior executives improve their own bottom lines by “juicing” their company’s stock prices and increasing the value of their personally held shares. That provides more guaranteed immediate gratification than rolling the dice with a new project or hiring and training new people.

One thing to remember is that we all have personal P/E ratios regardless of what the current figure might be. Our average cost per share may be far lower if we bought most of what we own years ago and continued to buy (hopefully) right through various downturns.

If we determine the average price of, say, all the 500 index shares we have bought, it could be less than half of today’s current price. Therefore, our personal P/E is, in effect, 11-to-1 instead of the current published figure. For long-term buy-and-hold investors, today’s 4 to 5 percent yield is effectively double what it would be if we were purchasing all our shares now.

By extension, a 3 percent dividend (the portion of profit paid out to stockholders) may really be 6 percent for us based on what our average cost of those shares has been. Thinking in these terms will make it easier to sleep at night through the next correction — a correction that may be triggered by policy risk given the untested, noble experiments proposed by our new administration.