Shiller PE nearing second highest value ever

[audreyh1]

IIRC, Warren has a record high of dry powder. Take heed.

I always consider . . . WWWD?

Very true!

 

[Route246]

OK, sanity check. I'm assuming none or very few of us are all-in on day trading, highly leveraged positions and get-rich-quick schemes.

I have been through numerous corrections in my lifetime, at least when I had money in the market.

Black Monday - Oct 1987
Dot-Com - 2000-2002
Subprime mortgage and Lehman Bros - 2008-2009
COVID-19 - March 2020

Were any of you wiped out by any of these corrections? Dot-Com caused a portfolio bump for me, probably lost 30%-40%, I don't even remember the exact amount but it was collective in society so my standing/rank in society didn't change much as it affected everyone in the village similarly. I will not lie, it was painful but it was also a lesson on markets.

Now, what eventually happened within 3-6 years later? Were you restored and then some? I certainly was.

Corrections happen. So what. They are healthy just like massive forest fires clearing out overgrowth in overgrown forests.

I don't know about you'all but I look at corrections as a positive thing. Sure, the bottom right number on the spreadsheet shrinks alarmingly and painfully but it is more psychological than anything else. I'm still going to buy groceries and it won't change what I buy at the grocery store. Life goes on. Hopefully, you'all have a financial buffer built into your savings to ride out corrections.

 

[COcheesehead]

They just make for conversation. You don’t need to do anything.

 

[Montecfo]

IIRC, Warren has a record high of dry powder. Take heed.

I always consider . . . WWWD?

Yet, I seriously doubt your investments largely track his.

I care what he says but his track record was built long ago. Following him recently would have cost you a lot of money if you sold your banks as he did.

I would like to know what he is thinking but it all may be table setting for his retirement.

Full disclosure: I hold quite a bit of cash awaiting reinvestment at this time.

 

[Montecfo]

Corrections happen. So what. They are healthy just like massive forest fires clearing out overgrowth in overgrown forests.

I don't know about you'all but I look at corrections as a positive thing. Sure, the bottom right number on the spreadsheet shrinks alarmingly and painfully but it is more psychological than anything else. I'm still going to buy groceries and it won't change what I buy at the grocery store. Life goes on. Hopefully, you'all have a financial buffer built into your savings to ride out corrections.

I agree. Since we are presumably all seasoned and successful investors I always find threads such as this puzzling.

And with all the people doing belt and suspenders to slay the SORR bogeyman.

I do look forward to corrections, the pause that refreshes. A chance to add to favored positions or establish new ones at a bargain.

 

[surprising]

OK, sanity check. I'm assuming none or very few of us are all-in on day trading, highly leveraged positions and get-rich-quick schemes.

I have been through numerous corrections in my lifetime, at least when I had money in the market.

Black Monday - Oct 1987
Dot-Com - 2000-2002
Subprime mortgage and Lehman Bros - 2008-2009
COVID-19 - March 2020

Were any of you wiped out by any of these corrections? Dot-Com caused a portfolio bump for me, probably lost 30%-40%, I don't even remember the exact amount but it was collective in society so my standing/rank in society didn't change much as it affected everyone in the village similarly. I will not lie, it was painful but it was also a lesson on markets.

Now, what eventually happened within 3-6 years later? Were you restored and then some? I certainly was.

Corrections happen. So what. They are healthy just like massive forest fires clearing out overgrowth in overgrown forests.

I don't know about you'all but I look at corrections as a positive thing. Sure, the bottom right number on the spreadsheet shrinks alarmingly and painfully but it is more psychological than anything else. I'm still going to buy groceries and it won't change what I buy at the grocery store. Life goes on. Hopefully, you'all have a financial buffer built into your savings to ride out corrections.

Regarding having a financial buffer, I am interested to hear about strategies people have employed during these downturns. I have an emergency cash that would last a couple years maybe. Do you wait for market to drop some X% before employing cash? At what point do you consider the market recovered? How do you replenish that cash fund once you believe the market is recovered?

 

[Route246]

I agree. Since we are presumably all seasoned and successful investors I always find threads such as this puzzling.

And with all the people doing belt and suspenders to slay the SORR bogeyman.

I do look forward to corrections, the pause that refreshes. A chance to add to favored positions or establish new ones at a bargain.

I'm actually selling some stock (and paying tax) and putting it into SUTXX for now to provide cashflow when I retire in a few months. It is actually quite a substantial amount and throwing off more than 4%. When the next correction happens I plan to DCA into some things, perhaps a stock or two that I view undervalued. Still adhering to Bob Brinker's double/triple bottom technical pattern approach. Those market tests have a nice track record dating back decades. It is not hogwash or black magic. It is based on historical data, observation and understanding sentiment and behavior.

 

[audreyh1]

Regarding having a financial buffer, I am interested to hear about strategies people have employed during these downturns. I have an emergency cash that would last a couple years maybe. Do you wait for market to drop some X% before employing cash? At what point do you consider the market recovered? How do you replenish that cash fund once you believe the market is recovered?

Not really.

If the equity market drops enough, I’m buying more equities to bring my portfolio into balance. I have cash and bonds in my portfolio as well as equities, so these will be tapped to rebalance when needed.

But I don’t rely on the market to recover to replenish my spending funds. I take X% out every January regardless of market performance. It just gets taken out from assets that have done better during the year - in other words rebalancing back to the original allocation more or less.

 

[COcheesehead]

Yet, I seriously doubt your investments largely track his.

I care what he says but his track record was built long ago. Following him recently would have cost you a lot of money if you sold your banks as he did.

I would like to know what he is thinking but it all may be table setting for his retirement.

Full disclosure: I hold quite a bit of cash awaiting reinvestment at this time.

He sold a lot at the end of 2024. The broad markets have been up 7%-8% since.

 

[COcheesehead]

Regarding having a financial buffer, I am interested to hear about strategies people have employed during these downturns. I have an emergency cash that would last a couple years maybe. Do you wait for market to drop some X% before employing cash? At what point do you consider the market recovered? How do you replenish that cash fund once you believe the market is recovered?

I am not a big cash guy, depending more on cashflow from fixed income, but I still have seven figures plus in equities. I add when things go below 10%, add more if they go below 20%, but really don’t do much else.

 

[Texas Proud]

As some are mentioning cash... that is something that you might think about...

I am not a big bucket kind of investor, but it would make sense to fill it up when the market is 'high'..

Another thought that I have not put much time into... I was in all those drops listed above... and all were an opportunity to buy on the cheap as I was still putting new money into the market... now there is no new money coming in... so with a drop I cannot buy 'on the cheap' anymore...

 

[Dtail]

Yet, I seriously doubt your investments largely track his.

I care what he says but his track record was built long ago. Following him recently would have cost you a lot of money if you sold your banks as he did.

I would like to know what he is thinking but it all may be table setting for his retirement.

Full disclosure: I hold quite a bit of cash awaiting reinvestment at this time.

Agree.

 

[Al18]

Texas Proud,
Decide on your preferred stock/fixed income ratio, and the % trigger to rebalance. In a down market, your equity % will drop, causing you to use some of your fixed income to buy more stock.

 

[Earl E Retyre]

The investment chief at $10 trillion giant Vanguard says it’s time to pivot away from U.S. stocks

“Over the past ten years, the S&P returned an average of 12.4% annually. We’re predicting the figure to drop to between 3.8% and 5.8% (midpoint of 4.8%) over the next decade.”

 

[Dtail]

The investment chief at $10 trillion giant Vanguard says it’s time to pivot away from U.S. stocks

“Over the past ten years, the S&P returned an average of 12.4% annually. We’re predicting the figure to drop to between 3.8% and 5.8% (midpoint of 4.8%) over the next decade.”

Didn't Vanguard predict a somewhat lost decade for equities in the 2020's?
So far......

 

[Fermion]

Nobody knows nuthin.

 

[audreyh1]

Shiller PE is about to overtake the Covid rally as second highest ratio ever recorded. Highest ever goes to dotcom peak. 4th highest is right before Black Thursday in 1929. All peaks were followed by significant crashes. Stocks are crazy expensive right now, mostly fueled by tech and AI, where they are commanding insanely high PEs right now. My crystal ball says that when Nvidia ever shows any kind of weakness, it will selloff pretty hard and take down the rest of the market.

But, on the flip side, I've also read that due to AI, big tech will continue to significantly improve EPS because they are firing lots of humans and replacing with cheaper AI. EPS will continue to go higher for the foreseeable future, so investing in S&P or nasdaq, which is heavily weighted tech, will continue to be profitable.

I think it’s already surpassed that and has recently been at the second highest value ever. Looks like it touched 40. The previous second highest peak was in Oct 2021 and with this recent selloff we have just come back to that.

Shiller PE Ratio - Multpl

Shiller PE Ratio chart, historic, and current data. Current Shiller PE Ratio is 41.57, a change of -1.13 from previous market close.

www.multpl.com

One thing about this site, and the CAPE10 data in general, is that the earnings data always lags by several months, so you aren’t getting a real-time reading. They just use the most recent earnings data which currently is from June 2025 (end of Q2).

 

[donheff]

But, on the flip side, I've also read that due to AI, big tech will continue to significantly improve EPS because they are firing lots of humans and replacing with cheaper AI. EPS will continue to go higher for the foreseeable future, so investing in S&P or nasdaq, which is heavily weighted tech, will continue to be profitable.

Yeah. "it's different this time." I have heard that mantra a few times. I even think it is different this time, but the singularity is still a way off and the immediate impact is overhyped, so... I went back on what I said above about sticking with my AA as always. We figured we have won the game and want to be sure we hand over the bulk of our estate intact to kids, so we flipped the AA from about 75/25 to about 40/60. Still plenty of equities if the boom keeps booming, but plenty of dry powder if the bubble bursts. Of course, to take advantage of the later, you need to pick a good time to get back in. Easier said than done. Assuming we get back in the AA will be set in consultation with the kids.

 

[FREE866]

Man, market goes down a few percentage points and like clockwork people start talking about PEs and the CAPE.
You know that Shiller himself is adamant that the CAPE is not a timing tool right? it's ONE variable. Why people even still bring it up is very strange.

For what its worth , here's a quote from 2017:
"
In 2017, the
Shiller P/E ratio was very high, consistently remaining above 30, a level nearly double its long-term historical average of around 17. This placed the market valuation at levels previously seen only before the 1929 crash and the dot-com bubble. "

Now imagine you stayed out of the market the last 9 years because you based your strategy on the "Shiller PE Ratio"!!!

 

[audreyh1]

Regardless, some of us still like to observe and talk about CAPE10.

 

[sengsational]

Many years ago, just for fun I made a spreadsheet from "Rock Breaks Scissors", which had triggers at 15, 24 and 6% trailing. It was in the market spring of 2009, and out fall of 2015, and it hasn't triggered 'in' again since.

The spreadsheet allowed me to tweak the triggers and see how the different values worked out. I think I came up with something that was "better" than the book, figuring that it really was "different this time"...enough to justify the changes. But I don't see that I saved my "wisdom" from back then.

I did cut my equity allocation down based on high CAPE way back then, but from just from 80% (maybe) to 67% since. I don't really need to take anything off the table at this point since time is the commodity that is in shorter supply for me than money.

Distant history thread: Using Shiller PE to Time the Market

 

[Montecfo]

Yes it is interesting to talk about but the discussion seems to often generate talk of timing-based AA decisions.

But that is also fair.

I found myself wondering when was the last time the market traded at or below the cape10 long term average PE of 17?

2009 right after the GFC. And then going back into periods when interest rates (a more in important factor IME) were much higher.

And obviously the stocks in the SP500 have changed dramatically over that time as has the US economy. Both are far less cyclical.

So you are comparing two very different baskets of stocks. Expecting them to be valued similarly is probably not logical.

The market is presently trading (in my view) on the expectation of earnings growth combined with lower interest rates. If either of those changes then I would expect the market will re-rate.

So having said that, it would not be crazy to take some winnings off the table. Especially if your AA is now out of whack.

 

[sengsational]

So having said that, it would not be crazy to take some winnings off the table. Especially if your AA is now out of whack.

Already did that, for sure. Nice that international finally gave back some. I expect my next rebalance we be back into equities, but that's the good thing about setting asset class targets...no need to sweat it...just buy the stuff that's on sale.

 

[audreyh1]

I’m always amazed at how mid 1990s it moved above 20 and stayed there since with the exception a blip down during the Great Recession. In fact since I retired it has spent little time below 25.

 

[Montecfo]

I’m always amazed at how mid 1990s it moved above 20 and stayed there since with the exception a blip down during the Great Recession. In fact since I retired it has spent little time below 25.

View attachment 60020

Yes. Now superimpose the 10 year bond yield...