Why Spotting Bubbles Is So Much Harder Than You Think

It's that time again.

A growing group of pessimists are asking whether the stock market is back to bubble territory. Some are even comparing it to 1999. They say stocks are being inflated by the Fed. That they're disconnected from the reality of a weak economy. That they're overvalued and bound to fall.

Could they be right? Of course.

They make a forceful case with charts and ratios and historical data.

But they have been making the same argument for four years now, and they have been wrong all the way. Clearly, the world is more complicated than the pessimists assume.

Consider that the S&P 500 has risen as much as 60% since these quotes went to press:

"The S&P 500 is about 40 percent overvalued" -- October, 2009

"US Stocks Surge Back Toward Bubble Territory" -- January, 2010

"On a valuation basis, the S&P 500 remains about 40% above historical norms on the basis of normalized earnings." -- July, 2010

"Is The Stock Market Overvalued? Almost Every Important Measure Says Yes" -- November, 2010

"The market is as overvalued now as it was undervalued [in early 2009]," said David A. Rosenberg, chief economist and strategist for Gluskin Sheff, an investment firm." -- March, 2010

"Andrew Smithers, an excellent economist based in London, is telling us that we're way too optimistic, that fair value for the S&P 500 is actually in the 700-750 range. Smithers, therefore, thinks the stock market is about 50% overvalued." -- June, 2010

Sure, you might say these calls were just early. But let me put forth a truism in finance: When an average business cycle lasts five years, there is no such thing as four years ahead of the game. You are just wrong.

Some of the bubble arguments haven't changed in the face of a 50% rally. Take the cyclically adjusted price/earnings ratio, or CAPE. In 2010, the S&P 500, which traded near the 1,000 level, had a CAPE valuation of around 22, which many pointed out was about 40% above historic norms. Today, trading above 1,600, the S&P 500 has a CAPE of about ... 23. Even as the market exploded higher, the degree to which the market is supposedly overvalued hasn't changed that much, since companies have been busy investing in their operations and boosting earnings. That's why being four years early means being four years wrong.

My point here isn't to relish in other people's bad predictions -- although I never tire of doing so. And let's state loud and clear: The higher the market goes today, the lower returns will be tomorrow. There will be more recessions, pullbacks, crashes, and panics in the future.

But there are several lessons we can learn from four years of failed bubble predictions.

1. Never rely on single-variable analysis.
Einstein said, "Everything should be made as simple as possible, but not simpler."

Wall Street blew up in 2008 after relying on mind-blowingly complex forecasting models that attempted to measure risk out to the fifth decimal point. Most investors now realize how flawed these complicated models were. But then they turn around and do the opposite, dramatically oversimplifying by trying to explain the global economy with a single metric. That's just as crazy.

History tells us that the single best gauge of future market returns is current valuations. But even a rational valuation measure like CAPE only has a small amount of predictive power.

The single most powerful variable when trying to predict the future is the "X" factor that represents human psychology, historical unknowns, and random chance. It doesn't care about your political views or what you think is a fair market value, and it's going to humiliate your predictions 90% of the time.

2. Realize that some analysts are stubborn to a fault
Some people predicted the financial crisis in 2008. And good for them. But many of them also predicted a financial crisis in 2007, 2006, 2005, 1997, 1995, 1992, 1985, 1970, and so on. They are perma-bears who get ignored during booms and lionized during busts, even though their arguments rarely change. It's the classic broken-clock-is-right-twice-a-day syndrome.

Author Daniel Gardner wrote earlier this year:

In 2010, [Robert] Prechter said the Dow would crash to 1,000 this year or in the near future. The media loved it. Prechter's call was reported all over the world. Which was nice for Prechter.

Even better, very few reporters bothered to mention that Prechter has been making pretty much the same prediction since 1987.

It was similar for investor Peter Schiff. There's a great YouTube video -- worthy of some 2.1 million views -- of Schiff predicting a market crash circa 2007. That was an excellent call. But here's another video of Schiff in 2002 predicting all kinds of gloom that never happened. Sadly, that video received only a handful of views. Gardner writes in his book Future Babble:

[Schiff predicted the 2008 crisis,] but it's somewhat less amazing if you bear in mind that Schiff has been making essentially the same prediction for the same reason for many years. And the amazement fades entirely when you learn that the man Schiff credits for his understanding of economics -- his father, Irwin -- has been doing the same at least since 1976.

The ideal pundit is one with a flexible mind who doesn't become wedded to forecasts for ideological reasons. Alas, few of them exist.

3. Missing a rally can be more devastating that getting caught in a crash
The vast majority of entrepreneurs, business leaders, policymakers, teachers, and consumers try hard to make the world a better, more productive place. In aggregate, they succeed the vast majority of the time. That's why there's a strong upward bias to equity markets over time.

It's also why missing a market rally can be a bigger risk to your finances than getting caught up in a crash. Getting caught in a crash usually means having to wait a few years at most -- which everyone invested in stocks should be prepared to do. But missing a rally can be a permanently lost opportunity. People spend so much time trying to avoid temporary pullbacks that they forego enduring market gains. If that's your thing, stick with bonds -- stocks aren't for you. I can say with high confidence that over the next 20 years we will have several severe market pullbacks, yet stocks will trade substantially higher than they do now. Why focus on the former and ignore the latter?

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 


Read/Post Comments (29) | Recommend This Article (79)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2013, at 1:02 PM, seattle1115 wrote:

    Both perennial optimists and perennial pessimists are proven wrong from time to time, but the long arc of human history suggests that the optimists are generally more likely to be right than the pessimists are.

  • Report this Comment On May 20, 2013, at 1:29 PM, duuude1 wrote:

    Start program

    Buy Stock Index Fund

    Wait until next pay period

    Repeat

    End

  • Report this Comment On May 20, 2013, at 1:33 PM, slpmn wrote:

    I think the market and it's growth in recent years can be justified pretty easily by the earnings growth and financial health of the underlying companies.

    What makes it tricky is the source (and sustainability) of the earnings growth. To the extent the growth comes from revenue growth, then sure, it's normal business cycle stuff. But, to the extent that strong earnings reflect things like better tax management (lower effective rates) and ultra low debt costs, then the sustainability is in question.

    Having lived through two bubbles (tech and housing), I take some comfort in the fact that this smells nothing like either of those. The wild card is interest rates. If those ever turn, we will have some big, big problems.

  • Report this Comment On May 20, 2013, at 1:48 PM, kyleleeh wrote:

    I've been watching Peter Schiff in the news now for about 7-8 years. One thing that jumped out to me immediately that the media never seems to call him out on is the obvious conflict of interest of asking the head of the Euro pacific capital fund whether or not the US stock market is a good investment. It's like asking the CEO of Pepsi whether or not people should drink Coke...of course their going to say no. He gets his income from investors who decide to put their money in non-US assets, so he has every financial incentive in the world to make the US stock market look like a disaster in the making...even if he knows it isn't.

  • Report this Comment On May 20, 2013, at 3:16 PM, Mega wrote:

    Spotting big bubbles can be pretty easy. Betting against them is difficult, but avoiding them is easy. Do you think Warren Buffett found it difficult to avoid buying tech stocks at 100x sales in 1999?

    Spotting small bubbles is pointless.

  • Report this Comment On May 20, 2013, at 5:39 PM, DonBevan wrote:

    This article tells more of why economic predictions we hear or read in the news is so often wrong. Than it explains bubbles or answered “ Why Spotting Bubbles Is So Much Harder Than You Think?” . During a bull market I think the news media likes to sprinkle the increasingly bullish news with an occasional bearish story which typically means interviewing a perma-bear

    or assign the newest member to the writing staff an article titled “ Why the stock market may be hitting a new top”. So each week or so expect a story from Peter Schiff and co. or by the summer intern at yahoo news. and when the time is right, the story will be timely.

    Next: how to spot a bubble, preferably before it pops. I’m kind of an expert in bubbles ever sense I bought some emus in the 1990’s and followed them up the inflate side and down the pop side of the bubble. A good way to determine if an asset is in a bubble is to look at a long term price chart. For instance print out a long term chart of the S&P 500. put a dot at 1960, 1980, 1995, 2000 and today and connect the dots. The line from line from 1960 to 1980 more or less flat-lines after inflation, partly due to wars and other things. From 1980 to 1995 the market rises at a good rate. A rate that may be sustainable in peacetime. But look at the big shift in optimism in the line from 1995 to 2000. I remember wanting some Microsoft stock when windows 95 came out even though I was not in the stock market at the time. The rate of change from 1995 to 2000 was unsustainable and yet maintained for five years! Notice how the the market tried to go up that steep in 1987 and how short lived that was.

    In the price graph of an asset, look for that change in momentum, or change in optimism.

    It is best to get out of an asset the first time you here someone say fundamentals/P.E. etc. don’t mater any more, or it is different this time. Others like to ride up and try to be the first out on the way down. But do not try to convince someone who is caught up in a bubble to get out. The one thing they don’t want to here, the voice of reason.

    They really want to ride it out and learn fro themselves.

  • Report this Comment On May 21, 2013, at 5:25 AM, MrNonsensical wrote:

    "The ideal pundit is one with a flexible mind who doesn't become wedded to forecasts for ideological reasons." ... golden!

  • Report this Comment On May 21, 2013, at 11:30 AM, SkepikI wrote:

    "having lived through two bubbles tech and housing" We could play spot the bubble, sort of like whack a mole these days, what with all the manipulation currently in vogue, but its actually more common to look backwards and say "THAT WAS A BUBBLE" which is the easy way to spot them, ha.

    I predict in a few months or a couple of years, you will say "having lived through THREE bubbles, tech, housing and bonds/interest rates"

    When primary forces, like the Fed can keep up the lunacy for a long time, its hard to predict the end of bubbles, its not too hard to spot them.

  • Report this Comment On May 21, 2013, at 12:09 PM, Estrogen wrote:

    To spot a bubble, accurately predict when it will burst, and make lots of money:

    1. buys some soap bubbles from Walmart.

    2. Take your young child or dog outside.

    3. Blow them into the air and watch the dog or child chase them.

    4. As they rise into the air, the air pressure on the outside of the bubble will decrease, so it will burst.

    5. Look for the average burst elevation.

    6. Graph it on your computer.

    7. Take a charismatic public speaking class.

    8. Become a talking head on the TV and start making lots of very bold predictions providing entertainment and selling advertising. When questioned, charismatically talk your way out of it.

    9. When you are finally right, quickly pen a best selling book and become ultra famous and rich as the demand for your meaningless, but entertaining services will skyrocket.

  • Report this Comment On May 21, 2013, at 12:27 PM, kavunaru wrote:

    But this time the bubble is real... Just kidding..

    Leveraged Borrowing:-

    But From here the economy has to grow... and our economy starts to grow only by leveraged borrowing..When housing boom started there was leveraged Borrowing to capital flow was there..

    Now that we are missing that cash flow.. Feds are trying to fill the Gap. Unfortunately Feds didn't give it to us directly but they gave it to the banks.. Banks are holding 2.4 Trillion $ as reserve Vs 100 Billion on a normal day..If it did not come out fo the banks, then we have to rely on people with no equity in the house to spend money.

    Older Generation:- Every day 10,000 people are retiring. We can't expect them to spend any money.. So the we have wait for next generation to spend money. But wait.. they already have 1 Trillion $ of student loan... Even before that the next generation needs to get a Job. But there are two problems we have to take first..

    1. Older people (55 and above) are getting the job. this is causing the increase in the Job statistics

    2. We have to add jobs that match with number of graduates coming out. Right now that ratio is very less..

    So growth prospects pretty slim from here..

    May be Market won't Crash it will be a soft landing.. But Iam always worried about the term soft landing since I have never seen one..

  • Report this Comment On May 21, 2013, at 12:40 PM, ibuildthings wrote:

    Item 1 above is applicable much farther than stock market prediction:

    Never rely on single-variable analysis.

    Many variables make an economy, or a business, or even a family run well or poorly. Use that piece of wisdom all over your life, not just the investment decisions. There are always multiple factors in play. Otherwise, how could so many people succeed while doing stupid things? This is how they confuse good luck for their great management skills. Same for bad luck.

  • Report this Comment On May 21, 2013, at 4:10 PM, MartyTheCanuck wrote:

    A bubble is stupidity X number of market players. I don't see that in the stockmarket now. Yes we had a good run for 4 years now, but that run followed a massive correction. On a scale of 0 to 10, with 10 being the 2000 Nasdaq, and 9 the housing market of 07, we might be at 6, slightly above average but nothing else. You can see it in the low number of "BUY !!" screams on yourt radar ( they were common in spring of 03 ), but I also get a lot less stock tips than at the height of 2000.

    So you have to be a stockpicker, or a regular buying of index fund to do well in such a market. Oh and keep your expectations reasonable.

  • Report this Comment On May 21, 2013, at 7:03 PM, Melaschasm wrote:

    "When an average business cycle lasts five years, there is no such thing as four years ahead of the game. You are just wrong."

    I love this quote!

  • Report this Comment On May 22, 2013, at 5:04 PM, AlwaysKnowBetter wrote:

    Missing a rally can be more devastating that getting caught in a crash <- THAN ;)

  • Report this Comment On May 22, 2013, at 6:34 PM, Alg0rhythm wrote:

    Everyone should have known something was wrong with the housing bubble. Fixed asset values should not change by double digit percentages year over year. Ever. The Fed pumping in 85 billion a month sounds crazy to me- that's 1 million 85,000 a year jobs, or if you want to get technical throw in overhead, benefits, and payroll we'll call it a million 60 K jobs. Every month. This from the geniuses who didn't think there was a bubble even in 06. Bill Gross thinks it's dangerous, and I dont think he's known as a perennial Chicken Little. Don't forget Asia is migrating from the dollar and if you don't think that is going to have consequences- well, get back to me in six months.

    What drives economies of scale is technology, which creates new demand, and requires new businesses on top of old ones. Smartphones is plateauing, essentially going to be replacing itself. It has to come from another sector. We need jobs to drive demand, otherwise __________

  • Report this Comment On May 22, 2013, at 10:36 PM, dsciola wrote:

    Interesting analysis, but I have to disagree somewhat with "there is no such thing as four years ahead of the game. You are just wrong."

    If the market corrects just a few %'s, then obviously the Bears are wrong...however if the market corrects back to prices they were at 4 years ago, well then I'de say the Bears made the right call.

    Thus I'de say its more the severity than the duration of a correction / bearish prediction that matters...of course no one, including the Schiff's and other perma-bears ever quantify the 'coming' crash, just say its coming...a 5% crash will not wipe out 4 year's worth of gains, but a 20% crash or whatever is the S&P's gain since 08 would...'proving' those who've predicted a crash for 4+ years correct

    granted, what's the probability of a poorly unwound QE or something else reverting valuations back to 08?

    Dom

  • Report this Comment On May 22, 2013, at 10:54 PM, dsciola wrote:

    Might I add this article would've been A LOT better, though still is informative, if the author not only explained 'why' but also explained 'how'...

    Great to know why bubbles are really so hard to spot...so how then should we do it? What 'signs' can indicate an asset is in bubble territory? Is it a 'science', e.g. p/e's far above historical norms implies bubble or an 'art', e.g. once their are no longer any clear pessimists / perma-bears, then time to watch out?

    Thanks again, always enjoy these articles.

    Dom

  • Report this Comment On May 22, 2013, at 11:55 PM, JF125780 wrote:

    Another excellent article from Motley Fool.

    Motley Fool gives good advice, but no wild claims such as I'll double your money every month and you'll never have to work again.

    Does anybody remember Ruff times many years ago. He was always predicting the collapse of the market. After about 5 years I never heard from him again.

    I guess Ruff went bankrupt before the bubble.

    Danny Kowkabany

  • Report this Comment On May 23, 2013, at 6:47 AM, Sapientia2 wrote:

    In reference to Danny Kowkabany's comment above .........

    Yes. I remember the "RUFF TIMES" Newsletter. I can still picture Howard Ruff with that phone in his ear. A real prophetic businessman! And does anyone remember those Doom & Gloom books, circa early 80's, 're' the impending survivalist scenario that was about to hit us all? Wow!

    Without 'TMF' to read back then, I followed my own nose. Did not buy gold, but, instead, placed most of my 'idle $$' into Certificates of Deposit paying 18% to 20% interest. Inflation back then, unlike today's 'fudged' figures from the FED (thanks Bernanke), was properly reported. I used some of my remaining $$ to pay off my mortgage early and invested the rest in a college education.

    Today, I'm a degreed Electrical Engineer, (really) own my own home, have ZERO debt, and have CA$H to spare. My 401k, has grown slowly, but surely (I'm not greedy), and I consider myself to be independently wealthy. I believe that there is manipulation of the stock market, but same doesn't phase me. I don't need it, Ha!

    For those stumbling around in the current global financial arena, remember this: Cum grano salis. It's Latin for "With a grain of salt." Put the Cable TV 'talking heads' aside and weigh and balance things for yourself. AND, don't bite off more than you can chew (financially). Financial independence is attainable, even if you have to live a little below your means, ... but it can be done. FOOL ON!

    Sapientia2

  • Report this Comment On May 23, 2013, at 1:00 PM, akutach wrote:

    Dom,

    I think the 4 years early = wrong comment is not to suggest they cannot be technically correct by comparing market numbers. Rather, if one is to make a timing call on an event that occur periodically, it is not being fair to say one is 'just early' when the error in timing is roughly equal to expected period in which the event would typically occur. The prediction with that margin for error could have been made by anybody with no knowledge of economics or markets and would have been more accurate.

    As for the how, you should read reports from Jeremy Grantham. His group uses quantitative methods to identify when asset prices deviate from mean or intrinsic value and adjudge the likelihood that such a swing can be explained by random price meandering. Statistically they quantify deviation from the mean in terms of X-sigma events where X is a number (usually less than 4, but only worth talking about as a forming bubble when >2) and sigma is a statistical grouping of normally distributed events. The higher the sigma value, the more likely the deviation from the mean is not just random. He remarks in his letters on the number of 2-sigma deviations they've identified in the past so I believe they regard a mispricing situation as worthy of consideration when sigma is greater than 2, but I have no insight to their decision making process.

    It takes a steady mind since there are two important components to such statistics - your data to adjudge deviations (easy and often available), and your belief in the true value or mean asset price from which you will claim a deviation. When bubbles form, one key contribution is that investors must create uncertainty about whether the traditionally determined value is correct and convince themselves that the valuation method needs to be changed - later on it is fueled by people with no regard for value. People who spot the bubbles usually are those who stand against the herd of people who say the value(ation) has changed - the changing price is obvious.

    alan

  • Report this Comment On May 23, 2013, at 1:17 PM, akutach wrote:

    One more comment/question on valuation. People have been citing that CAPE is high and explaining the sense of it based on the bolus of negative earnings resulting from bank write-offs in 2009.

    That doesn't make sense to me since these assets at some point were created on a money flow that created profits somewhere else - largely at the banks themselves. For one, the banks benefited from trading of the same assets they wrote off, but also in the raised home valuations and volumes in the form of loan originations. Home builders had an overbuild of homes absorbed at higher prices than should have been expected. Players in the entire real estate market place were flush with cash and spending on lots of things beyond their means. All of these things contributed to increased corporate profits in the years leading up to 2007/8. I don't know how to add them up, but I think tossing out the lump of 2009 losses and not regarding the accumulated preceding corporate gains seems to be engaging in exactly the type of revaluation justification I mentioned in the above comment.

    It seems that the distortion argument will only makes sense in ~2016-2018 when the losses contribute to CAPE, but the preceding gains are out of the 10-year window. When we hit a bear market bottom in 2016 ;), and we're coming out with claims of bubble-like CAPE valuations, then will be the time to explain it away as a 2009 artifact of the write offs.

    Alan

  • Report this Comment On May 23, 2013, at 3:43 PM, slotowner wrote:

    For everyone thinking bubbles are easy to spot, please look up the records of the Berkshire Focus, the technology fund that Warren started just before the dot.com crash.

    You can also see record of Warren's apology to fund holders about how he got caught in the shorts & had one of the worst performing funds of the year.

  • Report this Comment On May 23, 2013, at 5:59 PM, erkaye wrote:

    Morgan,

    Love your work. Two thoughts:

    First I think bubbles are fairly common if you it break down and look at sectors or look at smaller time periods. Consider gold/silver from 2000-2012, or on a smaller scale, solar stocks 2006-2008. Cloud computing? Youth fashions?

    Second, while they are hard to spot, I actually look for and embrace bubbles. I'm usually in late and out early as the first two above, but, some things like e-commerce and hopefully 3D printing, have real value behind the bubble aspect and continue to be good investments despite "crazy, bubble-like" valuations.

    The real question is how you know when it's over?

    Eric

  • Report this Comment On May 23, 2013, at 8:04 PM, dsciola wrote:

    Akutach,

    Thx for ur insight! I have read a bit on Jeremy Grantham also, from what I can tell he seems a bit of a perma-bear, but nonetheless does have a few good points...sigh, if only everyone had a CAPS :)

    I havent specifically come across his quant analysis you referenced in ur 2nd paragraph, which Im also still trying to fully digest, however I have read some of his other stuff. For example, see below a summary on his "Road to Zero Growth" piece

    http://www.advisorperspectives.com/commentaries/gmo_112012.p...

    Also see the 'Click Here' link for the full analysis, which may or may not detail his quant analyis you also referenced, havent read the full one yet.

    As for ur 3rd parapgraph, agree with first half, somewhat confused with 2nd half. Deviations from mean asset values can signal a bubble, but then again, perhaps they should be deviating because the asset is creating more value! Hence, the challenge in valuation, more art than science, etc.

    As for the 2nd half, my guess is its pretty much saying the same as the first half, thought I dont fully get 'When bubbles form, one key contribution is that investors must create uncertainty about whether the traditionally determined value is correct and convince themselves that the valuation method needs to be changed -'...ru referncing when investors completely disregard valuation? I'm no bubble expert of course, but nonetheless, sometimes the wrong valuatiion metrics are used to value things, which may give the appearance of a bubble...or conversely the appearance of undervaluation when that is not so!

    Great example imo being AAPL...in terms of 'normal' p/e valuation, it appeared that a near $1,000 share price was reasonable, not at all a stretch into 50x or even 30x earnings I believe a yr ago...now seems p/e is a near-inappropriate way to value AAPL, and imo, most tech firms.

    Finally, dont get ur analysis on CAPE, mea culpa. I'm familiar a bit with its methodology but still confused...my guess is you are pointing out it's flaw in excluding market downtrends, which thus may make non-bubbles appear to be bubbles, when in fact then of course they are non-bubbles?

    Thanks again!

    Dom

  • Report this Comment On May 24, 2013, at 4:43 AM, somethingnew wrote:

    This is an excellent article however I do disagree with the statement "When an average business cycle lasts five years, there is no such thing as four years ahead of the game. You are just wrong." This might be true for the overall market but for individual sectors it isn't. The housing bubble is a prime example. It lasted somewhere between 5-6 years which is why so few people believed it was a bubble. It was a bubble disguised as a long term business cycle.

  • Report this Comment On May 24, 2013, at 7:01 AM, EdV wrote:

    Quoting DonBevan, above, " I'm kind of an expert in bubbles ever since I bought some emus in the 1990s ...".

    That comment is one of the funniest and wittiest things I've read, even if you're serious and didn't mean it to be. I laughed out loud and thought to myself, "Who would buy emus as an investment??!!" I seriously hope you didn't wipe out your life's savings though.

    Thanks Don, you made my week. Cheers.

  • Report this Comment On May 24, 2013, at 7:44 AM, mikecart1 wrote:

    Spotting bubbles is actually easy. As much as I think Buffet is an overrated lucky bum, his motto has proven to be right over and over and over and over...

    "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful"

    Bought everything I could 2008-2009 and yada, yada, yada, made my own retirement. Now I'm doing the opposite and yada, yada, yada, will make another one haha! :)

  • Report this Comment On May 24, 2013, at 12:11 PM, CUTIGER75 wrote:

    Wall Street did NOT blow up in 2008 because of complex risk calculations . Quite the opposite ! It blew up because of government manipulation in the residential housing market ( subprime mortgages ) and VERY LITTLE risk assessment . It almost pulled the entire financial system into the abyss. That is what is happening again with the Federal Reserve manipulating interest rates on Treasuries and mortgages. Who knows how long the irrational exuberance will last but when it ends ...it will end .....bad. Japan's equity market plunged 7% yesterday....1 day.

  • Report this Comment On May 24, 2013, at 10:55 PM, ChrisBern wrote:

    It's actually pretty easy to see over and under-valuation in markets if you stick to measures that have reliable historical correlations. e.g. the Shiller PE10 ratio is quite clearly correlated with future returns:

    http://greenbackd.com/2013/04/03/how-accurate-is-the-shiller...

    Most investors just aren't wise nor patient enough to rely on historically reliable measures!

Add your comment.

DocumentId: 2441410, ~/Articles/ArticleHandler.aspx, 7/29/2014 8:48:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement