Shiller P/E – A Better Measurement of Market Valuation


The Shiller PE. Robert Shiller first proposed a ten year timeframe for his CAPE ratio, targeting it towards the S&P – the most well known American stock index.

The pe ratio has some inherent disadvantages, as we showed in the previous paragraph.

Navigation menu

The Shiller P/E equals the ratio of the price of the S&P index over E Why Is the Regular P/E Ratio Deceiving? The regular P/E uses the ratio of the S&P index over the trailingmonth earnings of S&P companies.

The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein.

In no event shall GuruFocus. Past performance is a poor indicator of future performance. The information on this site is in no way guaranteed for completeness, accuracy or in any other way.

The gurus listed in this website are not affiliated with GuruFocus. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily. FilingWiz Note User Manual.

Get 7-Day Free Trial. Check Out the Buffett-Munger Screener. Adjust the past earnings for inflation using CPI; past earnings are adjusted to today's dollars. The measure exhibits a significant amount of variation over time, and has been criticised as "not always accurate in signaling market tops or bottoms".

A common debate is whether the inverse CAPE ratio should be further divided by the yield on 10 year Treasuries. A high CAPE ratio has been linked to the phrase " irrational exuberance " and to Shiller's book of the same name. It also reached a historically high level again during the housing bubble up to before the crash of the great recession. From Wikipedia, the free encyclopedia.

Retrieved 4 July Archived from the original on 13 July Retrieved 23 August It is customary to compare pe ratios of:. Events such as asset book-value reduction, big fine by regulators and more. In those cases the pe ratio is irrelevant, this is another shortcoming of the indicator. Those companies goal is to develop a new product or take over a large market share and attract new customers.

The pe ratio of the stock will be very high in some cases, even over ; investors need to take all of this into their consideration when valuing the stock. The pe ratio has some inherent disadvantages, as we showed in the previous paragraph.

The revenue of this company grows consistently every year, and so does expense. Stock price moves up and the market value of the corporation is rising. The range of the pe ratios is In , the financial reports took a massive hit- Other expenses increased substantially above normal expenses. To get the whole picture, it is advisable to look at all of the next indicators and use your best judgment. It is calculated as the total value of all traded stocks on the American stock exchanges divided by the U.

There is one drawback: S than in preceding decades — comparison is problematic. Still, the Total stock market capitalization to GDP provides a very broad picture. It is calculated as the share current price divided by the last years average earning per share EPS , Inflation adjusted. The dividend yield of a stock market index is another way to evaluate the pricing of the market. Stock price tends to fluctuate more than the dividend distribution. A dividend yield that is much above historical average signals that stocks may be underpriced.

The relative strength index RSI is a momentum indicator which comes from the technical analysis world. It measures the intensity of price change of an asset and is intended to conclude if an assent is overbought or oversold, during the measured period. The most common number of periods used is The RSI strategies assume that after the values reach overbought or oversold territories, a correction will follow. The RSI is very popular among stock traders.

There are many strategies for short-term trading based on RSI values. For long-term investors, the RSI cannot stand alone in their decision making. You must blend it with other factors for a wiser view.