What it is – How it works
By Michael Zhuang MS www.MZCap.com
This Shiller PE index is a stock market metric invented by Yale University Professor Robert Shiller, PhD.
Basically, it is the average PE ratio of all S&P 500 stocks for the last ten years. The Shiller PE is also called PE10. Professor Shiller found it to be a reasonably good measure of valuation of the whole market.
IOW: The higher the Shiller PE, the more expensive the market. So, with Shiller PE at 24, we can call this market relatively expensive.
Here is what I know currently.
- The higher the Shiller PE – the lower the one-year and three-year return propensity.
- Return variability is so high as to render the Shiller PE’s predictive power very weak.
- Only when Shiller PE is over 35 are the three-year forward returns overwhelmingly negative.
So, the market may or may not be headed for a fall immediately, but we do need to temper our expectation of future returns.
About the Author
Michael Zhuang is founder and principal of MZ Capital, a fee-only registered investment advisor firm located in the Greater Washington D.C. metropolitan area.
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:
Health Dictionary Series: http://www.springerpub.com/Search/marcinko
Practice Management: http://www.springerpub.com/product/9780826105752
Physician Financial Planning: http://www.jbpub.com/catalog/0763745790
Medical Risk Management: http://www.jbpub.com/catalog/9780763733421
Physician Advisors: www.CertifiedMedicalPlanner.org