Large-company stock prices have tumbled 13% in three months. Small-company stocks have done worse. The ratio of share prices to company earnings ("P/E") is the lowest it has been in more than a decade. But is it low enough to make the broad market cheap?

That depends on how you measure. Over the past 135 years, stocks have carried an average P/E of 15.1, based on trailing 12-month earnings. (I'm using data provided on the websites of Yale economist Robert Schiller and Standard & Poor's.) As of the close of trading Thursday, the S&P 500 index, which more or less tracks the stock performance of America's 500 largest companies, had a P/E ratio of 16.6. Viewed like that, stocks look a smidgen pricier than average.

Remove special charges for things like bad loan write-downs from the past year's earnings, and the result is a more alluring P/E of 14.9. Whether that's a fairer number or not is a matter of opinion. But if we were able to apply the same tactic to 135 years of corporate accounting, we'd surely end up with a lower historical P/E, too. That suggests again that stocks are pricier than average, but not worrisomely so.

Of course, current stock prices seem modest compared with recent ones. Since 1990, the S&P 500 has carried an average P/E of 23.3. Some researchers say this period was less a fluke than the start of a permanent shift in how stocks are valued. Investors feel more confident about the performance of stocks and so are wiling to pay more to own them, the thinking goes. Proponents of that theory hold that better monetary policy has made prolonged economic depressions less likely. They say that the market might now gravitate to an average P/E of closer to 20 than 15.

If you believe that, stocks today are cheap. If you don't, they're pretty close to average, which still makes them well worth buying, considering that average stock returns are far more generous than average returns of other assets, like real estate. That's not to say the market can't go lower and stay there for a while. But for long-term investors, it's a fine time to buy.

Jack Hough is associate editor at SmartMoney.com and author of Your Next Great Stock.