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CAPE Shiller P/E Ratio

The Cyclically Adjusted Price to Earnings Ratio also known as the CAPE or the Shiller P/E Ratio. Is a measurement conceived by famous economists and Yale professor Robert Shiller. The Shiller P/E ratio is widely regarded as a more reasonable market valuation indicator than annual P/E ratio because it eliminates the fluctuation of the ratio caused by the variation of profit margin during the business cycle and provides the best long-term measurement for market price.

The historical average of the Shiller P/E for the overall market is 16.8 times Earnings. Investors who have bought the market with ratios below 10 times Earnings have seen tremendous long-term gains. Investors who have bought the market at 14-20 times Earnings have seen average long-term gains. Investors who have bought the market above 24 times Earnings have seen poor long-term performance.

Below 10 Excellent (Plus 15% Annual Avg)
14 - 18 Average (7% Annual Avg)
Above 24 Poor (Minus 15% Annual Avg)

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