That doesn’t bode well for future returns. So what can you do about it?
The US stockmarket is looking expensive, however you measure it
Here at MoneyWeek, the cyclically-adjusted price/earnings ratio (Cape for short) has long been one of our favourite long-term valuation measures. It was popularised by Yale professor and Nobel prizewinner Robert Shiller in the late 1990s. (Indeed, it’s sometimes known as the Shiller p/e as a result).
What does it do? A traditional price/earnings (p/e) ratio compares the share price (p) of a company to one year of its earnings (forecast or historic). Or, if you’re looking at an entire index, it compares the price of the index to the combined earnings of the companies that comprise it. The higher the p/e, the more you are paying for each pound or dollar of earnings.