The Investment Scientist

Archive for April 2017

The US market ended the month of March with the PE10 at 29.02. The PE10 is a stock market measurement devised by Nobel Prize winner Robert Shiller to measure the extent of market over-valuation or under-valuation. The long-term mean of the PE10 is 17, so the current level is nearly twice the long-term mean.

There have been only two other instances in history when the PE10 was this high, one in July, 1929 and one in February, 1997. It’s very interesting to study these two instances to frame our expectations of future market returns.

In both instances, there were two or more massive market corrections in the subsequent 20 years, but the market trajectories were vastly different. See the chart here :
Screen Shot 2017-04-05 at 9.25.04 AM.png

In the 1929 instance, the market peaked two months later while in the 1997 instance, Read the rest of this entry »


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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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