A Few Words About Valuation

A few weeks ago, Yale Professor Robert Shiller won the Nobel prize for his work on irrationality and inefficiency of markets. Since then, we have been treated to a plethora of stories on some of his other work -- especially so-called CAPE, Shiller’s measure of long term valuation. The general consensus seems to be that CAPE -- the cyclically adjusted price-to-earnings ratio – is elevated, stocks are overvalued, and a crash is imminent.