Cyclically Adjusted Price to Earnings Ratio
The Cyclically Adjusted Price to Earnings Rate (CAPE) is a valuation metric that smooths out earnings volatility over a number of periods
- CAPE is a variant of P/E Ratio
- CAPE uses long-term earnings instead of short-term to smooth out one-time quater to quarter abberations
- Has a good track record of predicting when stock are overvalued
- Typically uses 10 years of prior earnings data
- Also known as the Shiller Ratio
Historical CAPE Values
- Historically has had a median of roughly 15.5x
- Almost hit 45x in the 2001 tech bubble
- Second highest ratio in 2019 (greater than during the 1929 Stock market crash)
- 28.8 in 2019; 70% higher than historical average of last 138 years