Search Results for: cape

A common criticism of Professor Robert Shiller’s famous CAPE measure of stock market valuation is that it fails to correct for the effects of secular changes in the dividend payout ratio.  Dividend payout ratios for U.S. companies are lower now … Continue reading →

In the first century, the historian Plutarch introduced a famous philosophical paradox.  The paradox goes like this.  A ship–“The Ship of Theseus”–was returning home to Athens from Crete.  As it sailed, the wooden planks that made up its structure gradually … Continue reading →

Why is the Shiller CAPE so high?  In the last several weeks, a number of prominent academics and financial market commentators have attempted to answer this question, to include the inventor of the valuation measure himself, Nobel Laureate Robert Shiller.  In … Continue reading →

In this piece, I’m going to address three responses to my earlier piece on the Shiller CAPE. First, a response from Peter Atwater of Financial Insyghts.  Second, a response from John Rekenthaler of Morningstar.  Third, a response from Bill Hester … Continue reading →

For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30.  It spent 55% percent of the time above the average, and 45% of the time below–a reasonable … Continue reading →

The following chart shows the distribution of future return assumptions that state and local pension funds were using to value their liabilities as of February 2017: The average expected return was around 7.5%. How can any large fund, much less … Continue reading →

It’s the fall of 2011. Investors are caught up in fears of another 2008-style financial crisis, this time arising out of schisms in the Eurozone. The S&P 500 is trading at 1200, the same price it traded at in 1998, … Continue reading →

In this piece, I’m going to share a mental exercise that we can use to increase the truthfulness of our thinking. The exercise is intended primarily for traders and investors, given their obvious (financial) reasons for wanting to think more … Continue reading →

Looking back at asset class performance over the course of market history, we notice a hierarchy of excess returns.  Small caps generated excess returns over broad equities, which generated excess returns over corporate bonds, which generated excess returns over treasury … Continue reading →

The prior piece received a much stronger reaction than I expected.  The topic is complicated, with ideas that are difficult to adequately convey in words, so I’m going to use this piece as a follow-up.  I’m going to look at the … Continue reading →