Of course I know you all left here. Lot of CAPE warriors were arguing markets were expensive during the 2010 to 2020… missing lots of gains. I considered CAPE as useless measure.
Having said that, CAPE is getting high, and any value above 45 will make me consider hedges…
If it’s a useless measure, why hedge based on its level? And if it’s not a useless measure, why wait for it to reach an all-time high to start hedging based on its level?
Something is useful at extreme is very different from being useful on a daily, weekly, monthly, even yearly investment horizons. Also, I said, I am going to hedge rather than sell. But I am arriving to hedge using various other measures also, not just because of this one indicator.
Arguing 17 PE is normal and CAPE at 25 means market is so expensive, imminent crash… is hogwash. CAPE is useless for overall market valuation and super useless for individual companies. But hey, go and pull some of those CAPE arguments… you can find every nonsensical financial argument and they were made here and celebrated.
The sad part is that many bought into the “overvalued” narrative and went into cash losing out decades of compounding.
The chart looks like one of those from multipl.
You raise a good point. Do you know if anyone has back-tested?
The chart itself looks like the level of “normal” has risen quite a bit since stock investing became routine and easy for Joe and Mary Public to do. The “eyeball average” of 1905 - 1995 seems lower than the panic low of 2009-2010.
