Yale Economist Robert Shiller says he thinks stocks “look highly priced, but not super highly priced”. In an interview with Consuelo Mack on WealthTrack, Shiller says the market’s 10-year price/earnings ratio (which averages earnings over the past ten years) has historically averaged about 15; lately, it’s been around 20. But Shiller says it’s “not too disquieting” a number, and that, given the long-term success of stocks, investors shouldn’t avoid them. “I think that one might… Read More
The recent downturn in the stock market has made stocks significantly cheaper than they were before — but they’re not yet “cheap”, according to The Wall Street Journal’s Jason Zweig. “Consider the [valuation] measure preferred by the great investment analyst Benjamin Graham and refined by Yale University economist Robert Shiller, called the ‘cyclically adjusted’ P/E ratio,” writes Zweig. “It smoothes out the market’s temporary peaks and valleys by averaging the past 10 years of earnings… Read More
The “CAPE” Ratio — or Cyclically Adjusted Price/Earnings Ratio — has gained attention in recent years, and many commentators have recently pointed to the ratio as a reason that stocks are overvalued. (The current CAPE of almost 24 is about 50% above the long-term average of about 16.) But is the CAPE level in and of itself reason to make investing decisions? No, says hedge fund manager and CNNMoney columnist Jeff Westmont. “While the CAPE… Read More
After years of being overvalued by one of the tougher value metrics — the 10-year P/E ratio made famous by Yale economist Robert Shiller — stocks finally appeared undervalued a few few months back. Now, with stocks having surged some 35% in the past three-plus months, the broader market is back up to “fair value” levels according to the Shiller P/E, The Business Insider’s Henry Blodget reports. “The market’s [10-year] PE right now is about… Read More
The big question in the market these days seems to be, “Have we hit a bottom?” After enduring a bear market that has lasted nearly 18 months and cut the value of the S&P 500 in half, it’s certainly a reasonable question. But in the latest issue of my Validea Hot List newsletter, I explain that now is no time to be sitting on the sidelines trying to wait for a clear, precise bottom. In… Read More
Examining historical trends in the 10-year price/earnings ratio, bond yield spreads, and equity risk level premiums, Professors Dale L. Domian and WIlliam Reichenstein make the case that now is a good time to buy stocks ($$) in a research piece published by the American Association of Individual Investors.
Fortune’s Shawn Tully recently looked at the Shiller P/E model (developed by Yale University professor Robert Shiller), which calculates the P/E ratio of the market using ten years worth of earnings (vs. just the earnings of the last 12 months). Currently, the market P/E based on the Shiller model is around 15, which is lower than it’s been in 20 years. The bottom line is the lower the P/E is when you invest the higher… Read More