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Valuations, Inflation and Real Returns

by Charles Rotblut, CFA and Robert Shiller

Listen to Robert Shiller's presentation at the AAII Investor Conference!

Robert Shiller is the Sterling Professor of Economics at Yale University. He developed a cyclically adjusted price-earnings ratio, called the CAPE ratio. We spoke recently about his research on stock asset valuations an

—Charles Rotblut

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Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/charlesrotblut.
Robert Shiller is the Sterling Professor of Economics at Yale University. He will give a keynote address at AAII’s Investor Conference this fall in Orlando, Florida; go to www.aaii.com/conference for details.


Discussion

fang from Mississippi posted 10 months ago:

after all the vacillation, the last paragraph is best advice!


Joe E from Florida posted 10 months ago:

I read both editions of Irrational Exuberance as soon as they were published. The first edition, focused upon the stock market, allowed me to avoid the first internet boom, and to make outsized returns taking the opposite side of the trade from the trend followers. The second edition, which added the housing market analysis, I pretty much ignored. This cost me a pretty penny as I found myself with an extra Florida beachfront condo at a very inopportune time.
One piece of wisdom contained in the interview is that the larger companies are followed by Very Smart People with world-class intelligence gathering systems. Smaller companies are not nearly as well followed. Value Line has a pretty good product covering these companies for those with the time to invest as well as the money.


Vaidy Bala from posted 10 months ago:

Investment is done to profit not for fun, for most people anyway. Do Index or hand over to adviser. You cannot beat intelligent people. This seems to be the summary. So, what is new in Irrational Exuberance that we did not know?


Dick H from Virginia posted 10 months ago:

Prof. Shiller's last paragraph points me to the AAII Shadow Portfolio.


Jim Morlock from New Jersey posted 10 months ago:

This an excellent article. I would like to see AAII keep these charts up to date on a monthly basis.


Ed from Florida posted 10 months ago:

By simply studying and thinking about the CAPE graphic and the Real Estate graphic on Schiller's website, one can draw meaningful inferences. A good shortcut.

Ed from Maine


Shyam from California posted 10 months ago:

Excellent insight about the financial market.


Al from Jamaica from Armed Forces America posted 10 months ago:

Good article, tentative and suggestive about his own advice/conclusions, bottom line on equities might be "recommend diversified investment in index funds, with a bit of 'shadow stock' play?"


Roger Mckinney from Oklahoma posted 6 months ago:

Shiller's nemesis, Fama, has modified the CAPM to show that small cap, value and momentum stocks will outperform the broader averages. There are good economic reasons for that.

I think the AAII screens provide the best advice for investors. Professionals are biased and research has shown that simple objective tools, such as linear regression, can beat pros nine times out of ten. Pick a screen that fits your philosophy and stick with it. You will beat the market easily.

But one of the most important things to know is when a recession is coming and avoid the market crash that comes with it. The Austrian business cycle theory can help. rdmckinney.blogspot.com


Peter Yogman from Utah posted 5 months ago:

Roger you are right. Any AAII stock screen pretty much trashes the efficient market theory and that goes beyond just bubbles and crashes that Shiller references as the theory's weakness. Get an advisor, buy broad ETF's, and end up with less than you started with - guaranteed. In addition to business cycle theory check out demographic trends (eg. HSDent) Really long term but informative.


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