The Shiller Cape PE Ratio and Investing Returns (S&P 500 data)
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- Опубликовано: 4 окт 2024
- The Shiller PE ratio or the CAPE PE ratio (cyclically adjusted price to earnings ratio) that uses 10 year average earnings to calculate the price to earnings ratio. The Shiller PE ratio is used to smoothen short term impacts like recession and other earnings issues. For example, during the 2007/2009 great financial crisis, the PE ratio went above 100 due to low earnings but the CAPE ratio went down to indicate the cheapness of the market. Low Shiller PE ratio leads to higher returns and a high usually leads to lower returns. We show regression analyses to confirm the thesis.
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I can see that Sven invested in a new hairstyle, huge returns expected!
:-))))))
Looks 15 years younger
Nice haircut, Sven
Thanks! 😃
You should also look at the Shiller Excess P/E ratio. It’s the Shiller P/E’s yield, and subtracting the 10-year yield adjusted for inflation. Periods of overvaluation flare up quite well using this ratio
thanks for sharing!
That sounds like a pretty problematic number to compute, since the 10-year yield is *forward*-looking but the CAPE-ratio is for the most part *backwards*-looking, *and* the CAPE is a lagging indicator and the 10-year is a momentary one. That means their difference probably is very biased.
Glad you liked the graphs. It's so cool to see this video as a long time viewer thanks for your analysis 🤠
Thank you:-) Really nice graphs and I enjoyed the process. Any other ideas, just send them over :-))) THANKS!!!!
Great job, William
I would add here that inflation according to government is most likely underestimated, resulting in a higher current inflation adjusted shiller PE than real.
good point!
Feels like I'm back in stats class 😄. Thanks sven
Welcome back!
It is quite obvious that the stock market is pricey. The question is what are the alternatives? If Chinese themselves are not excited about their stock market, probably they know it better. Of course, I could make a risky contrarian bet on China with 25% portfolio, but what do I do with the rest? Pick some value traps? I think bonds or cash are even more risky than stocks in the long term, and it is likely the stock market is highly priced, because it predicts accelaration of money devaluation.
Chinese are gamblers and don't know better :-)) What are the alternatives - well, bonds, and looking for pockets of value in Europe for example... Tomorrow a stock...
@@Value-Investing cool. looking forward to the next video
I don't think cash is ever risky. What is imo very very risky is having like 95% of your wealth in stocks like the talking heads want you to believe. Maybe that's ok if you're young or we're not talking about large sums of money being invested. I'd definitely buy some bond funds though (and I have)... when the rates come down, they go up. Unless you're afraid of resurgent inflation. If that happens then money is king, to buy even cheaper bonds & stocks.
@@Value-InvestingWhat do you mean by your sentence that Chinese are gamblers? I follow your channel but I think I misunderstood this comment. You mean that any investment in China is pure gambling? That's kind of contrary to your normal outlook isn't it? Maybe just rephrase that sentence if you don't mind.
shiller PE can stay high for decade before return normal
I've said it earlier, I want a live class from you where I can ask live questions and there is interaction with the class + teacher. R^2 is great when its 0.90, having 4 dots with 500% is nice but that is just luck. 100 dots at 20 too 400% is concerning and that seems still be like betting on high returns over 15 years. While I thought 15 years is pretty safe to have accumulated nice returns. Maby 20% return is nice to settle on and I only have higher hopes on becoming a trillionair, instead of having a comfortable and realistic %return.
that is the problem with academia and real investing. BUffett always said he just wants to be vaguely right, not precisely wrong. To get a Ph.D. you try to do precision but you end up wrong anyway... trust me, I do have a wrong Ph.D :-)))
Excellent piece!
Many thanks!
Do you mind sharing with us how much percent you feel comfortable with holding in Chinese Stocks of your portfolio?
40% at the moment
@@Value-Investing oh damn! Wish I had the guts to do that. I'm in 10%
@@Value-Investing I'm impressed. You actually do what you preach. I have 33% China... although 8 points of that is EM Asia. May need some patience and belief to hold on long enough for sentiment to turn. How do you feel about Japan at this stage of momentum? ...Maybe a decent idea for next vid...
Hi I am happy to just DCA into the SNP consistently at the highs and the lows . I don't try to time the market to get in and out and i don't pick individual stocks . I like to keep things very simple, very little thinking involved. I know I will do very well doing this over a 30 to 40 year period. As long as your tough enough to stay the course and not sell when markets are crashing and just buy more at discounted prices. I know I will do just fine if i just do this and that's good enough for me .
THAT IS THE KEY, AS YOU SAY: "at the highs and the lows". If you do that, no worries, but most people chase the highs instead of the lows and then cry when it doesn't go up.
I agree 👍.
I'd love to see this analysis on the single stocks within the S&P 500 (and more). Certainly, you would gain statistical robustness with a larger N
but then we have to adjust for business developments over time, M&A etc... impossible to work it out...
Schiller cape ratio is a good indicator for stable companies, but it doesn’t make sense for growing companies. What is the sense to average earning of Nvidia for the last 10 years?
Forward P\E is much more appropriate to make this type of analysis
alright, but this is for index investing, not NVIDIA
@@Value-Investing Nvidia is only an example, magnificent 7 are tech growing companies and averaging their earnings for the last 10 years do not make sense either. You can apply Shiller to companies like British American tobacco, Mc Donald’s or other slow growing
Love the haircut! Thanks for another great video! :)
Thank you!! 😊
ty for the video. I've been trying to tell people about this
thanks
Valuable message.. thank-you!
Glad you think so!
Another masterpiece
thanks!
I've heard people argue against shiller pe because it's backwards looking, and markets are forward looking
The same people often argue that previous earnings reports don’t matter, DCF models do.
One actually exists and the other is, at best, an educated guess.
the past is not so far away from the future, but the future often is far away from reality
With the +30% over the last year in the S&P, and the crazy high PE ratios, I have no idea what to think
don't think about that, think about the fundamentals and where you can find them!
Interesting... I think treating the linear regression data as a barometer for who the deck is in favor of. Basically if you are following Edward Thorpes approach, when the deck is stacked against you (slightly unfavourable) then reduce your bet size and be more in cash. If its in favor, place bigger bets and if it's completely against you, just walk away or stay in cash. Since no one metric can ever explain the relationship between returns. 40 percent is very good but it would be hard to stay out of the market completely, as long term value investors will atest to.
As for China, on paper it's great, part of the reason it's so low is the Xi Jinping effect and how do you go about valuing all public companies and state control effect?
Comparing the historical CAPE average to the current is kind of apples to oranges. Accounting rules have changed, we've had low interest environments, and 401ks are a relatively new instrument where pensions were used in the past more, trading is cheaper and easier, etc.
I'm a little pessimistic about the next 10 years, but am not overly negative. If you think about it, if we have a bad decade then this 20 year period will be one of the worst ever given the 2000s were flat. I think the Magnificent 7 are overvalued (how much idk), but the rest of the market is not.
Current environment is hard for discussions on valuation. As you have discussed multiple times, the value of currency is very likely to collapse significantly in a coming decade and these thing have a hierarchy in high inflation environment. Long term bonds < short term bonds / cash < stocks < "real assets" < gold(/BTC), the more the inflation the more the value is destroyed and always more in the left side. BTC and gold are both at all time high now btw. My guess is that those markets are sniffing something.
thanks for sharing!
How about combining Shiller PE with VIX.....R sq. should be above 0.5 with only these two factors.....
that is a good addition ;-)
We are approaching Nov, 2021 valuation. SP500 may peak with another 30% upside or so and Nasdaq another 40% ? It seems bear market is coming in 1 to 2 years. I estimate market crash around end of 2025 judging the margin data is still slightly below exponential trendline.
time will tell
I'm using a quant modell to indentify cheap stocks. JDI Peet's from the Netherlands looks very attractive. What do you think?
have to check it again, thanks!
I wonder what CAPE PE ratio looks like for mid-cap or small-cap indexes.
I didn't check the data, but I assume it follows because when I checked small caps or midcaps those were expensive!
Can you do Shiller / Cape for chinese stocks? @@Value-Investing
What is your thoughts on AGI effects on employment and real estate investing?
time will tell
Good info. I don't know what information you are willing to share here but what other markets besides China look under-valued? As always, thanks!
there are telcos in Europe, but that is not easy
@@Value-Investing Thanks!
Also can you send the best fit curve equation for those 10 and 15 year graphs?
I don't have that
@@Value-Investing lol
Hair looking good Sven.
thanks!
Thank you very much for this great video. Do you consider the election of Trump a risk for chinese stocks as it was in 2018/2019?!
from a US perspective maybe, for me in Europe, don't care...
@@Value-Investing they meant sentiment and even earnings worsening even further.
Less you are indexing, who cares?
There are always great stocks that are undervalued in any "market"
that is absolutely correct!
In a top stock market usually rimes with a lot of IPO's. Not there yet.
that bubble burst in 2021, now money is a bit more careful with new things
at the moment it seems that people dont care about these parameters though. My fear is that they will keep buying even with weak fundamentals.
that is correct, with the devaluation of money, it might not be a bad investment at all
HDFC bank. Indias top bank. Trading at historic low PE ratio.
banks always seem cheap ruclips.net/video/EMhoCEYSa6o/видео.html
shiller PE can stay high for decade before return normal
What abiut STOXX 600 CAPE now @Sven Carlin?
don't know the date :-(
Surprisingly, you can find it in China/HK.
:-)
Hi Sven, why brazil markets are so low. For ex : ewz
often there is has to do with currency and politics.
Nominal return is all that matters. let's say Shiller earning yield is only 3% but inflation boosted yield is 8%. you still need to invest or lose 5% wealth to inflation
Thanks for sharing!
That hairstyle tho
:-)
Lmao when you said dead person
:-)
1st
yes you are, thanks!
Solution dollar cost average.
only if done through thin...
China will never have equity ownership even close to the US, for one, because you don't "own" Chinese equities. Not even a Chinese citizen owns the equity let alone an American or European. They are literally communist, how could one (especially a foreigner) "own" equity in a communist state owned asset, on top of which is the Wests #1 adversary which we switch between playing nice or sanctioning and banning each other year to year... I've thought about it but it is too risky. To me that's just musical chairs of who gets their assets seized first by the CCP. Their stocks are so cheap but for a reason, sure you can gamble and catch a 2 or 3x but it's not like the US market is lacking gambling opportunities either.. And even though the US has uncountable amounts of problems, you can at least rest assured your assets wont get seized if the powers that be feel scared on a particular day.
fair point, thanks for sharing!
China is uninvestable. The political risk is too high, the chance of your investment going to 0 is quite high, like it was with Russia. That's not value investing, it's gambling. You're just taking a gamble on the political risk instead of the stock price.
"Value investor discusses the potential of 'uninvestable' stocks": ruclips.net/video/NTdo1TDggrM/видео.html
Nonsense. China has been the same for past decades and stocks have been soaring.
One shouln't swallow the US propaganda line hook and sinker...
thanks for sharing!
Just wait til you realize apple makes all their phones in China and every US tech company needs semis from taiwan
You will never gain
You look like a Playboy now Sven..
:-)
The problem with China stocks is the country dictatorship and how foreign investors are considered. For instance, will they ever receive a dividend from being a shareholder? If no, it's the greather fool game.
thanks for sharing
Te di finanza 🫣 con i minatori d oro ho fatto il cinquanta percento in quindici giorni fatti all ippica
guarde, questo e VALUE INVESTING FOR THE LONG TERM, se tu vieni qua a lodarti dell 50% in 2 settimane, mi sa che sei tu nel posto sbagliato!
@@Value-Investing no io non mi lodo di niente ,come si fa a dire che i minatori non faranno gain quando l oro e’ a quella cifra e si prospetta un taglio dei tassi , faranno dieci volte i guadagni dell oro i piccoli Miners , proprio perché’ fai value Investing si vede lontano un miglio che i Miners sono regalati poi boh fai te
@@Value-Investing con questo niente di personale