Shiller PE Ratio(multpl.com)
multpl.com
Shiller PE Ratio
https://www.multpl.com/shiller-pe
80 comments
Sonali Basak acting like 16 P/E is some kind of deal for a company with no growth story. I'm waiting for 10s.
Where else are you going to park your money?
There are some good p/e companies with a dividend. Toyota for example.
Yeah, this is one of my current takes. I'm kinda afraid single stock picking based on my past performance...
VXUS, 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)
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)
Your money might be safer in casino chips.
Thing is even companies like NVIDIA that have been on a crazy run are still somewhat reasonable on pe at 50
Very confusing picture
Very confusing picture
At the risk of gross oversimplification (or maybe total misunderstanding), is this roughly the same as the difference between average and mean?
Average and mean are the same thing. I assume you meant median. It’s similar in this case, but it’s really more like the different between the average of the full list of companies and the average of the full list of companies with the top few hundred removed.
Ahh, thank you, yes - median. Thank you as well for the explanation.
Yes what you are looking for is market-cap weighting (S&P 500) vs "equal weighting" (e.g. the RSP etf) which gives 1 weight to each of 500 stocks, rather than weighting by size of the company.
PE ratio of S&P 500: 31
PE ratio of RSP: 21
PE ratio of S&P 500: 31
PE ratio of RSP: 21
The good/bad thing is more people are in index funds and are overexposed to the expensive companies (especially $TSLA)
There are a lot of people that only hold $TSLA and are quite obstinate about it on X. If Tesla can't perfect and launch completely autonomous cars and humanoid robots in the next ten years these people are going to lose most of their net worth. By relative comparison, index investors are highly protected.
Is that really A LOT of people? A few posters on X is hardly a lot of people, no? By contrast there is an awful lot of people who are currently overexposed to the usual suspects due to problematic index weighting. Which is aimed at meeting tax law quirks for tax efficiency rather than investing wisdom.
You're right, it's only 2% of the S&P 500.
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It 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.
Yes, 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.
> 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"?
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"?
It’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.
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Does 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”?
T-Bills are at 4% which is below the rate of inflation
Because of the implication that markets are moved by amateurs and their hope?
Irrational exuberance the very thing this indicator was intended to track.
We 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
A "fair" P/e depends on a lot more than just stock prices and their earnings.
The 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
For that matter, how much of it is still stocks or stock-linked?
This 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.
BTW, I'm long-term bullish on AI, I just think companies have gotten over their skis in the short-term.
The 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.
Tell that to their actual customers. At some point, State Farm or Eli Lilly is going to say "hey, we spent $1B on AI and fired 10,000 people. Where's all that efficiency you promised?"
That first sentence sounds so like 2008-land. House of cards is a house of cards. If 1 + 1 = 2, the market will discover it. The 1 + 1 = 3 narrative can only be controlled for so long.
I think that the Fortune 500 is so invested in AI that AI has potentially become "too big to fail". There are increasing political and financial connections between big tech and the executive branch as well. As long as the Trump administration is willing to backstop any backslide on AI, things will only continue to go up. And there's no guarantee that Democrats would take a significantly different stance.
What does it mean to "backstop" an AI company whose products no longer appeal to people?
It's reasonably clear what it means to backstop failing financial institutions and so on. Not clear on how the concept applies to Microsoft or Nvidia or something.
It's reasonably clear what it means to backstop failing financial institutions and so on. Not clear on how the concept applies to Microsoft or Nvidia or something.
The US federal government already took an equity stake in Intel so they might do the same with other key tech companies.
Trump may be willing but is he able? The US economy isn't unsinkable, or have infinite money to borrow or even print. I am not sure Trump is that tech co. friendly either and he is definitely not consistent and can turn at any time.
For the next three years, the Trump administration can borrow or print an effectively infinite amount of money. Then cleaning up the mess through an austerity program will become someone else's problem.
They might but they are not immune from global markets that are watching their moves closely. Those markets determine bond yields and currency exchange rates.
Although the market can be irrational longer than Trump needs to stay in office.
Although the market can be irrational longer than Trump needs to stay in office.
> As long as the Trump administration is willing to backstop any backslide on AI, things will only continue to go up.
Government trying to “backstop” firms to prevent a bubble bursting may be able to delay it somewhat, but not indefinitely, and only at the cost of magnifying the impact when it does.
And the capacity to even delay it is constrained by the state of the rest of the economy, and that isn’t looking great right now in the US, which is teetering on the edge of stagflation.
Government trying to “backstop” firms to prevent a bubble bursting may be able to delay it somewhat, but not indefinitely, and only at the cost of magnifying the impact when it does.
And the capacity to even delay it is constrained by the state of the rest of the economy, and that isn’t looking great right now in the US, which is teetering on the edge of stagflation.
+1, just like the dot-com bubble
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NASDAQ 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.
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.
ETFs 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.
ETFs 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)
The 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.
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.
You're cherry picking the tech titans that made it out of the Dot Com boom alive. The NASDAQ-100 had to replace 36 of its components between 2000-2002 due to bankruptcies and delistings - nobody knew in 1999 which companies would be the survivors.
The NASDAQ topped at 5,048.62 on March 10, 2000. It took 15 years for the NASDAQ to recover to its dot-com peak level. In those 15 years, you got an inflation-adjusted negative annualized ROI.
Annualized return of the NASDAQ from the 2000 peak to today is an inflation-adjusted 3.4%. Even "sure thing" blue chips like Cisco and Intel still haven't recovered their 2000 peaks in real terms, 25 years later.
The NASDAQ topped at 5,048.62 on March 10, 2000. It took 15 years for the NASDAQ to recover to its dot-com peak level. In those 15 years, you got an inflation-adjusted negative annualized ROI.
Annualized return of the NASDAQ from the 2000 peak to today is an inflation-adjusted 3.4%. Even "sure thing" blue chips like Cisco and Intel still haven't recovered their 2000 peaks in real terms, 25 years later.
You're cherry picking
nobody knew in 1999 which companies would be the survivors
This 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?
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?
I 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.
The 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.
Also, 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?
Is this not cherry picking based on survivor bias? I don’t know the results but you should run it against a basket. If you invested in the sp500 march of 99 to now your annualized return is 6%.
I think all of us who were there remember the layoffs that followed this moment.
These are just 2, what happened to all the other 1999 tech companies?
Is 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!
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!
> 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.
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.
what 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?
> what are ETFs and/or financial products that take this into consideration?
They often have something like "Value" in the name, e.g. VTV, IUSV, SPYV. While not explicitly targetting now Shiller PE, they usually have significantly lower PE than "growth orienten" stocks (such as most of the tech megacaps that currently dominate SP500, VT and other market cap weighted funds). What exactly goes into "Value" funds is either too opaque or takes too long to explain in a comment.
> what difference does it make in terms of volatility and/or expected returns to invest in something like SP500 or $VT compared to Shiller-PE-adjusted products?
Volatility is likely (but not certainly) lower. Expected returns: convincing narratives could be told either way, but nobody knows with any certainty.
> does this matter in the long-term, or better, when exactly is "long-term" long enough so that Shiller PE doesn't matter and one can just go with SP500/$VT without sleepless nights?
Again, nobody knows, and you should be skeptical about pretty much any opinion that smells like investment advice. The posted graph shows that the current S&P 500 PE (or some approximation thereof, SP500 didn't exists until the 1950s) is high by historical standards. What to make of that is open to different interpretations.
Many people might intuit some sort of mean-reversion process behind (Shiller-)PE, but
- it's unclear which to "mean" and at what time frame it would revert
- as another poster pointed out, mean-reversion could take place by E going up as well as P going down
They often have something like "Value" in the name, e.g. VTV, IUSV, SPYV. While not explicitly targetting now Shiller PE, they usually have significantly lower PE than "growth orienten" stocks (such as most of the tech megacaps that currently dominate SP500, VT and other market cap weighted funds). What exactly goes into "Value" funds is either too opaque or takes too long to explain in a comment.
> what difference does it make in terms of volatility and/or expected returns to invest in something like SP500 or $VT compared to Shiller-PE-adjusted products?
Volatility is likely (but not certainly) lower. Expected returns: convincing narratives could be told either way, but nobody knows with any certainty.
> does this matter in the long-term, or better, when exactly is "long-term" long enough so that Shiller PE doesn't matter and one can just go with SP500/$VT without sleepless nights?
Again, nobody knows, and you should be skeptical about pretty much any opinion that smells like investment advice. The posted graph shows that the current S&P 500 PE (or some approximation thereof, SP500 didn't exists until the 1950s) is high by historical standards. What to make of that is open to different interpretations.
Many people might intuit some sort of mean-reversion process behind (Shiller-)PE, but
- it's unclear which to "mean" and at what time frame it would revert
- as another poster pointed out, mean-reversion could take place by E going up as well as P going down
For the OP, if you are looking for a classic on "value investing," Benjamin Graham's "The Intelligent Investor" will lay it out. I invest broad index rather than value, but it's a good read.
One 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.
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.
Lower 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-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-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-all...
Interesting. Added a * to my comment.
I think it's still accurate to say that you'll lag the total market during the run-up, right? So anyone buying value should be prepared for that feeling of FOMO, in exchange for long-term peace of mind.
Then again, the beta on your small cap portfolio is 1.04 (higher than your mid/large cap portfolio .93). This matches my intuition: going for value means lower beta, but going small means higher beta. So for small cap value, these effects sort of cancel out and you end up slightly above 1.
Altogether, small cap value is an interesting choice. Not bad.
I think it's still accurate to say that you'll lag the total market during the run-up, right? So anyone buying value should be prepared for that feeling of FOMO, in exchange for long-term peace of mind.
Then again, the beta on your small cap portfolio is 1.04 (higher than your mid/large cap portfolio .93). This matches my intuition: going for value means lower beta, but going small means higher beta. So for small cap value, these effects sort of cancel out and you end up slightly above 1.
Altogether, small cap value is an interesting choice. Not bad.
No that wouldn't be accurate either, as a total market bull run like '91 - '96 or definitely '01 - '07 still had value outperforming. There's enough uncorrelated returns that it's too tough to say how it will behave during each decade.
Huh, I guess that's so.
Well, can we at least agree on the part about most structured products being a rip-off?
Well, can we at least agree on the part about most structured products being a rip-off?
Yes, I agree 99% of financial funds are rip offs with 1% fees and dubious payout. Personally, only 0.10% or less total market index funds make sense to me, but Small Cap Value as a low cost index strategy could be an ok addition.
At times like this, it’s good to remember the words of the great Jack Bogle: “Nobody knows nothing.”
Just 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.
On the other hand, price to sales and book value are looking very high as well.
Stocks do seem a bit pricey. Which is not to say they won't get even more so.
It's also worth considering the amount of cash still sitting in US treasuries
So, decreasing?
https://fred.stlouisfed.org/graph/?g=tRur
Or am I looking at the wrong graph?
https://fred.stlouisfed.org/graph/?g=tRur
Or am I looking at the wrong graph?
Increasing in money markets: https://www.wsj.com/finance/investing/us-investors-cash-9411...
A lot of cash still on the sidelines
A lot of cash still on the sidelines
You have to calculate the 1/ shareholder yield
So should I buy puts for qqq?
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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