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.
| P/E RATIO | FIVE YEAR AVERAGE RETURN |
|---|---|
| Below 10 | Excellent (Plus 15% Annual Avg) |
| 14 - 18 | Average (7% Annual Avg) |
| Above 24 | Poor (Minus 15% Annual Avg) |