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Monthly Archives: December 2013
Valuation and Stock Market Returns: Adventures in Curve Fitting
My prior piece on asset supply has received significant interest, and so I feel an obligation to clarify. The title, “The Single Greatest Predictor of Future Stock Market Returns”, was something of an intentional exaggeration, chosen not only to draw attention to … Continue reading
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The Single Greatest Predictor of Future Stock Market Returns
Consider the following chart, which shows the average investor portfolio allocation to equities from January 1952 to December 2013: The metric in this chart takes no input from any variables traditionally associated with valuation: earnings, book values, profit margins, discount … Continue reading
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Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau
For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable … Continue reading
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