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Barry Ritholtz

A Few Words About Valuation: Ritholtz Chart

The general consensus seems to be that CAPE -- the cyclically adjusted price-to-earnings ratio -- is elevated, stocks are overvalued, and a crash is imminent. This is a misreading of both valuation measures, as well as causes of crashes.

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A few weeks ago, Yale Professor Robert Shillerwon the Nobel prize for his work on irrationality and inefficiency of markets. Since then, we have been treated to a plethora of stories on some of his other work -- especially so-called CAPE, Shiller's measure of long term valuation. The general consensus seems to be that CAPE -- the cyclically adjusted price-to-earnings ratio - is elevated, stocks are overvalued, and a crash is imminent.