Rule of 18

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Rule of 18

A general investing rule stating that the sum of the inflation rate and the price-earnings ratio of the Dow Jones Industrial Average determines the general trend of stock prices. If the sum is below 18, stocks are supposed to increase, while if it is above 18, they are thought to be ready to decrease. For example, if the inflation rate is 5% and the DJIA's price-earnings ratio is 19, the sum is 24, and, according to the Rule of 18, stocks will soon decrease.