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AFTER the tech crash a decade ago, investors started giving closer attention to the prices they pay for stocks.
Some have turned to a tool known as the cyclically adjusted price-to-earnings ratio, or CAPE, to determine whether stocks are cheap or expensive. Yet while this version of the P/E ratio, popularized by the Yale economist Robert J. Shiller, correctly signaled frothy markets in 1929, 1999 and 2008, some strategists argue that it may not be as accurate in gauging valuations today as it was in the past.
“The basic idea of smoothing out earnings over time is excellent,” Mr. Siegel says. But he points out that the current CAPE for domestic stocks includes a 90 percent annual earnings decline in the first quarter of 2009. “You’re averaging in an unbelievable hole in profits,” he says.
Mr. Shiller, who is widely credited with having warned investors about the tech crash and the more recent housing bubble, concedes that “corporate earnings have been unusually volatile in the past decade.”
But he argues that this is more reason — not less — to use normalized earnings in calculating the market’s P/E. “What alternatives do people have?” he asked in an interview. For instance, he says, if volatile swings in profits affect 10-year averages, surely they would distort P/E’s based on 12 months of profits even more. (Mr. Shiller is a regular contributor to the Economic View column in Sunday Business.)
OH no! NO ONE CAN MONEY ON ANY ASSET EXCEPT FOR NYC COOPS....
Sell GOLD, SELL SILVER, SELL SPRINT, SELL EQUITIES!
BUY NYC RE....
Fking give up you old Social Security checking cream cheese eating fool. JUST DIE
>Fking give up you old Social Security checking cream cheese eating fool. JUST DIE
Took a bunch more profits today. Every time I sell, I basically get it all back invested with another increase.
okay, but with all that money, you still need affirmation?
My equity positions are basically passive and yet are trading higher than what they were in the past, account keeps going up. I'm sure many people can say something similar. It's awfully hard to see losses when the indices are higher
See, this is why I keep shaving down... if it goes down a bit more, I might buy some back.