No, you are just not interpreting the data correctly.Nope. Shiller's own data shows relatively low returns during the low CAPE 10 era, and high returns since 1988, which represents both the CAPE 10 out of sample period, and the era of high Shiller PEs: https://ofdollarsanddata.com/sp500-calculator/ https://www.multpl.com/shiller-pe
And the long term average prior was close to 12% annualized
Since the dot com bubble it was less than 8%
And internationally 4.5% during a starting period where CAPE was in excess of 40
The predictive power of CAPE is roughly 40%, one of the strongest explanatory variables of returns.
CAPE was less than 10 between 1974 and 1985. Here are the twenty year returns with each start date below.
1974 - 12.67% CAGR
1975 - 14.31% CAGR
1976 - 14.45% CAGR
1977 - 14.46% CAGR
1978 - 16.62% CAGR
1979 - 17.62% CAGR
1980 - 17.88% CAGR
1981 - 15.51% CAGR
1982 - 15.10% CAGR
1983 - 12.71% CAGR
1984 - 12.91% CAGR
1985 - 13.18% CAGR
..... fast forward a few years ....
1993 (20X CAPE vs 10X CAPE period previously) - 8.19% CAGR --- doubling CAPE reduced long-term returns vs. historical average, and dramatically so versus periods just a few years prior when CAPE was significantly lower.
Investments should be judged on at least a 10 year horizon, and likely longer than that. CAPE is indeed noisy, but it's one of the strongest explanatory factors in investing. It's a lesson on why we should not get caught up in recency bias of a few years or even as long as a decade, because history has a way of giving some of that back.
Statistics: Posted by Nathan Drake — Mon Oct 21, 2024 10:54 pm — Replies 145 — Views 12983