Summary: The Shiller cyclically adjusted P/E divides price by the average inflation-adjusted earnings of the last ten years, so a single unusual year (a war, a cold summer for an ice-cream shop) doesn’t distort the valuation. A CAPE of 41 means investors pay $41 for each dollar of average annual earnings. High CAPE predicts lower future returns on average, but it is not a timing signal: markets can stay expensive for years. In October 2026 the S&P 500’s CAPE was above 41, a level exceeded only during the dot-com bubble.
Key ideas
- CAPE averages ten years of inflation-adjusted earnings, measuring value “over a long time” instead of one possibly abnormal year (lazy-investing—111-the-ai-bubble, tamir).
- The only time the S&P 500’s CAPE was higher than today’s ~41 was the dot-com era (lazy-investing—111-the-ai-bubble, tamir).
- Revenue isn’t profit: revenues can double while a company loses money; CAPE looks at earnings (lazy-investing—111-the-ai-bubble).
- When prices are high, expected future returns should be lower, for stocks as for apartments (lazy-investing—111-the-ai-bubble, tamir).
- Competing with bonds: with US Treasury yields around 5.6%, buying stocks is a bet that they’ll beat 5.6% a year over decades, a tall promise when the market’s yield is only ~1% (the host’s figure). That makes the market fragile if investors switch to bonds (lazy-investing—111-the-ai-bubble, tamir).
- Stocks still beat bonds long term for two reasons: companies pass inflation through to prices (a ₪55.4 sunscreen becomes ₪56.4), and they stay tied to whatever technology rally comes (lazy-investing—111-the-ai-bubble, tamir).
Disagreements & open questions
- High valuation vs staying invested: CAPE says expect lower returns, but the host still won’t sell, because acting on valuation has repeatedly cost investors (see market-timing) (lazy-investing—111-the-ai-bubble).