Shiller PE
The gold standard for long term equity investors
Investing is for the long run. Still, it matters how much and when you invest. The Shiller PE is one of the most reliable and effective tools to guide you.
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Why is it popular?
The Shiller PE is popular among many investors. Why?
Long Term
Investing is for the long run. The Shiller PE helps you to invest on the long run.
Proven
A lot of evidence shows the reliability of the Shiller PE.
Easy
Once understood, it is easy to understand
Short history:
The Shiller PE ratio was developed by professor Robert “Bob” Shiller and popularized during the Dotcom Bubble in the late 90s when he argued that equities were highly overvalued.
The Shiller PE is a variant of the popular price to earning ratio (PE-ratio) and is calculated by dividing the current price of a stock by its average inflation adjusted earning over the last 10 years.
Check out the YouTube interview with Robert Shiller explaining the concept.
Different name, same concept
The Shiller PE is one of the few names investors give to a similar concept.
Graham & Dodd PE
Price divided by 7 year earnings for a company
Cyclically Adjusted PE (CAPE)
Price divided by 10 year earnings for an index
Shiller PE
Price divided by 10 year earnings for an index – using real (inflation adjusted) numbers
Cheap or expensive?
The Shiller PE is a valuation indicator for an equity index. It has a reliable track record in determining if the stock market is cheap or expensive.
It works best on long term horizons of 10 years.
“Used properly, this metric will guide you to asset allocation decisions that improve your long term returns and lower risk of large portfolio drawdowns.”