CAPE / Shiller PE Ratio

10 ต.ค.

The CAPE (Cyclically Adjusted Price-to-Earnings) or Shiller PE ratio is a popular valuation measure used by investors to assess whether a stock or index is over or undervalued relative to its historical earnings. Unlike the traditional P/E ratio, the CAPE ratio smooths earnings over ten years, adjusting for inflation and providing a more stable and long-term view of valuation.

This indicator lets you quickly calculate and visualize the CAPE ratio for any stock on TradingView, helping you make informed decisions about the sustainability of current price levels. With its clear presentation and intuitive setup, you can compare historical CAPE levels and identify potential opportunities for long-term investments or avoid overvalued markets.

Advantages of the CAPE Ratio:

• Long-Term Focus: Smooth earnings over ten years, reducing the impact of short-term volatility.
  
• Inflation-Adjusted: Provides a more precise, inflation-adjusted valuation measure over time.
  
• Historical Comparison: Allows for benchmarking against long-term historical averages.
  
• Market Sentiment Indicator: Can highlight overvalued or undervalued markets for long-term investors.
  
• Reduces Noise: Filters out short-term earnings fluctuations, offering a more stable view.
  

Disadvantages of the CAPE Ratio:

• Ignores Recent Earnings: Misses short-term earnings changes, which can affect current valuations.
  
• Outdated Data: Relies on old earnings data that may not reflect recent company performance.
  
• Less Effective for Growth Stocks: May undervalue high-growth stocks focused on future earnings.
  
• Sector Limitations: Works best for broad markets, less so for fast-changing industries.
  
• Debated Predictive Power: It’s unreliable for timing short-term market movements.
  

In short, the CAPE ratio is excellent for long-term valuation but has limitations for short-term or growth-focused investing.

Disclaimer
Please remember that past performance may not be indicative of future results.
Due to various factors, including changing market conditions, the strategy may no longer perform as well as in historical backtesting.
This post and the script don’t provide any financial advice.