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Shiller PE Ratio
- deleted 1y ago[deleted]
- digitcatphd 1y agoIt is an odd position because the P/E and Forward P/E are elevated but not extreme. The bigger warning signal for me is when I see people in public talking about stocks or having stock screens open and this happened almost four times in one week. For me that is basically the sign to risk manage.
- boyka 1y agoBecause of the implication that markets are moved by amateurs and their hope?
- digitcatphd 1y agoIrrational exuberance the very thing this indicator was intended to track.
- pphysch 1y agoYes, a family member approached me about investing in a scheme (on Robinhood) ran by an infamous dotcom boom huckster. They had already invested 5 figures and shared that another extended family member was 6 figures deep, fully exposed. These are normal people with normal jobs.
- pfannkuchen 1y agoDoes the pleb index (so to speak) hold when the cause is less “I’m going to make a ** ton of money” and more “the currency is *** and I have to store value somewhere”?
- digitcatphd 1y agoT-Bills are at 4% which is below the rate of inflation
- creer 1y ago> bigger warning signal for me is when I see people in public talking about stocks Which is interesting "this time" because much of the issue may be due to historical and tax-quirk fullfilling index weighting. And the people invested nearly entirely in these indexes is kinda by definition the people who normally don't even look at their investments. "Irrational autopilot"?
- deleted 1y ago[deleted]
- digitcatphd 1y agoIt’s never different this time, this is embedded into human nature and people oscillate between fear and greed. That’s it. Not more complicated than that.
- historian1066 1y agoIt's also worth considering the amount of cash still sitting in US treasuries
- mooreds 1y agoSo, decreasing? https://fred.stlouisfed.org/graph/?g=tRur https://fred.stlouisfed.org/graph/?g=tRur Or am I looking at the wrong graph?
- historian1066 1y agoIncreasing in money markets: https://www.wsj.com/finance/investing/us-investors-cash-94116602?reflink=desktopwebshare_permalink https://www.wsj.com/finance/investing/us-investors-cash-9411... A lot of cash still on the sidelines
- turnsout 1y agoThis is conjecture, but I'm fully expecting a correction, if not a recession. Fortune 500 has gone all-in on AI and set high expectations for increased efficiency. So far, that boost has not come, but Wall Street has been patient. But if you fast forward a few quarters, I wonder if investors will lose their patience and wonder why we're all still burning cash. BTW, I'm long-term bullish on AI, I just think companies have gotten over their skis in the short-term.
- danielfalbo 1y ago+1, just like the dot-com bubble
- orky56 1y agoThe high concentration of tech companies that are spending on AI are also the ones controlling the narrative including the funding, success criteria, and communication. We are more likely to see minor corrections that effect individual companies but don't impact the market enough overall.
- jameslk 1y agoThe S&P 500 is currently dominated by a handful of very expensive companies: https://www.slickcharts.com/sp500 https://www.slickcharts.com/sp500 If you look at the P/E of mid and small cap companies, their valuations look much more sane: https://x.com/sonalibasak/status/1970881745227833694 https://x.com/sonalibasak/status/1970881745227833694
- maerF0x0 1y agoSonali Basak acting like 16 P/E is some kind of deal for a company with no growth story. I'm waiting for 10s.
- jameslk 1y agoWhere else are you going to park your money?
- blargthorwars 1y agoThere are some good p/e companies with a dividend. Toyota for example.
- maerF0x0 1y agoYeah, this is one of my current takes. I'm kinda afraid single stock picking based on my past performance...
- rickydroll 1y agoYour money might be safer in casino chips.
- toomuchtodo 1y agoVXUS, BNDX, EUR, real estate The future is India and Africa, the last of the world with a demographic dividend ahead before rapidly aging like the rest of the world. Not easy for your average investor to get risk adjusted exposure there yet though. (not investing advice)
- s-kymon 1y agoWe broke 40 earlier this month. Historically these levels portend negative 10 year real returns. https://x.com/s_kymon/status/1971224323554935283 https://x.com/s_kymon/status/1971224323554935283
- danielfalbo 1y agowhat are ETFs and/or financial products that take this into consideration? what difference does it make in terms of volatility and/or expected returns to invest in something like SP500 or $VT compared to Shiller-PE-adjusted products? does this matter in the long-term, or better, when exactly is "long-term" long enough so that Shiller PE doesn't matter and one can just go with SP500/$VT without sleepless nights?
- arduanika 1y agoOne of the more straightforward things you can buy is a "value" index fund, which will tend to be more durable / low beta / lower P/E / a bit more recession-proof. The tradeoff is lower vol and lower* returns -- you'll partly miss out on the rest of this big run-up. Value funds are widely available (often paired with the opposite "growth" funds), and you can put some money there if it helps you sleep. The concept might already be oversubscribed, idk, but at least it's simple and you're still owning equities at 1x, no weird derivatives. It's not a big fancy ripoff like some sort of "structured product" that you'll get if you ask your question here of a self-interested financial advisor. If you think you've got too much Mag 7, you could also go for small and midcap funds. Often means higher beta & vol, but less concentrated. But who knows, aggregation theory might still not yet be fully played out, and the giants could keep eating more and more of the pie. Bond funds have a place, too. * Or maybe not, see reducesuffering's comment below.
- reducesuffering 1y agoLower returns isn't accurate. Small Cap Value as an asset class has actually outperformed the returns of the total market over the long term: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=1oHzpZPh8u9im2OmpsbUJk https://www.portfoliovisualizer.com/backtest-asset-class-all... I know there's consensus that smaller caps are actually higher beta and thus higher risk. However, I don't believe there's any consensus on value being lower beta, less risky, or less returns. After all, large cap and mid cap value also outperformed total market: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=2bIoPWBkJIaQs9qzRRXERj https://www.portfoliovisualizer.com/backtest-asset-class-all...
- kekqqq 1y agoSo should I buy puts for qqq?
- patwolf 1y agoJust a reminder that a market crash isn't the only way the Shiller PE Ratio can return to "normal". It can go back down if earnings go up. Or if previous dips in earnings roll outside of the 10-year window used to calculate the ratio.
- justin66 1y agoOn the other hand, price to sales and book value are looking very high as well.
- fuckyah 1y ago[dead]
- ArtTimeInvestor 1y agoThe all time high of the Shiller PE was in December 1999. If your hypothesis at that time was that the internet would benefit tech companies, it was not a bad time to invest: Microsoft shares were $58. Now they are $510. => 9% annualized ROI. Amazon was at $4. Now it is at $220. => 17% annualized ROI. QQQ was at $89 and is now at $592 => 8% annualized ROI.
- turnsout 1y agoI agree 100%. If your investing horizon is at least 10 years, there's literally never a bad time to buy technology equities (ideally as an index). What's the counterargument? That technology will be less important in the future? That sounds apocalyptic.
- nradov 1y agoThe counterargument is that most developed countries are facing a slow demographic collapse, so those tech companies will eventually run out of new customers and revenue growth opportunities. Not exactly apocalyptic but more like stagnation and malaise. I'm not claiming that will inevitably occur but it's reasonably likely.
- karmakurtisaani 1y agoAlso, these companies are valued like growth stocks. Even without the demographic collapse it will be difficult to find massive growth at their scale. Some might do that, but which ones?
- btilly 1y agoThis is selection bias. You are picking companies that, in retrospect, we all know because they did well. But most of the companies that people were "investing" in at the time, the ones that drove that PE, were dot coms that went out of business. Like pets.com. As Warren Buffett warned at the time, every new technology wave results in a similar bubble. People invest because we know that the technology will reshape the future. And we reward the first to the market because we can't imagine that they won't be long-term winners. But the companies that arise early in a technology bubble, are seldom the ones that survive long-term. We are witnessing the same today. Most of the current AI leaders, won't be AI leaders in 20 years. So which one will you invest in?
- rybosworld 1y agoA "fair" P/e depends on a lot more than just stock prices and their earnings.
- CGMthrowaway 1y agoThe fed has equivalent of 12% of S&P market cap on its balance sheet. As long as it does, many believe P/e ratio will be largely useless
- creer 1y agoFor that matter, how much of it is still stocks or stock-linked?
- randomtoast 1y agoETFs were first introduced in 1993. Ever since then their populairty is increasing. Nowadays everyone and his mom is pouring all their savings into ETFs. That's the main reason why the P/Es are at all time highs + of course of the current A.I. boom.
- toast0 1y agoETFs are Mutual Funds with lower costs. Of course, their popularity increases over time. They do the same job as mutual funds, which have been popular for investing in more or less their modern form since at least the 1940s, but lower costs makes ETFs preferable (I'm a dinosaur and still prefer mutual funds, but I'm going to have to give up sooner or later)
- deleted 1y ago[deleted]
- nenenejej 1y agoIs this posted to imply things are overvalued and due for correction? If so there is one issue with that. It is more tax efficient to have lower earnings and disguise profit and reinvestment as R&D cost. Tech companies can do this covertly due to the jack of all trade Software Engineering (and friends) roles that could be BAU or RD work. When a metric becomes a target it ceases to become a good metric. But when an accounting metric causes you billions of dollars in tax, and you are mostly compensated in share price not earnings it becomes really skewed!
- justin66 1y ago> If so there is one issue with that. It is more tax efficient to have lower earnings and disguise profit and reinvestment as R&D cost. Stock prices are not just historically high relative to earnings (using CAPE or not), they're historically high relative to book value or sales. There might be a clever effort to not have earnings that are justified by share price, for tax reasons. Is there similarly a clever effort to not have sales that are justified by share price? > due for correction That's pretty hard to predict.
- devops000 1y agoYou have to calculate the 1/ shareholder yield
- tim333 1y agoStocks do seem a bit pricey. Which is not to say they won't get even more so.
- burnt-resistor 1y agoNASDAQ composite P/E was ~10 in the beginning of 1995. Between March 2000 and part of 2002, it was 150+. It took much time and pain until 2005 to stabilize at a new equilibrium of around 30 where it's bounced around between 15 - 50 where large, sudden increases tend to portend a market contraction of unknowable depth. I also wonder about the impact of the growing fraction of the economy no longer subject to gamified speculation held by private equity which is now around $3.5T AUM, but comes with other downsides because they do not seem to care about the longevity or goodwill of businesses they own and seek unsustainable maximum resource extraction rather than predictable steadiness.
- RickJWagner 1y agoAt times like this, it’s good to remember the words of the great Jack Bogle: “Nobody knows nothing.”