Shiller P/E
Active equity managers can outperform their benchmarks, especially if they follow some important guidelines. Alpine Capital Research (ACR) and its CIO, Nicholas Tompras, CFA, provide a case study on how to implement these factors.
Perhaps one reason panglossian market conditions can persist in the age of Twitter and Instagram is that omnipresent social media allow us to edit out anything that vaguely threatens our preferred mindset about stocks.
With markets exhibiting notable volatility, I would urge all enterprising investors to focus on two important questions that may lead to greater understanding.
Equity fund managers are underperforming their benchmarks again this year, continuing a trend that started sometime shortly after the Big Bang.
The momentum effect in investing refers to the tendency of stocks and other financial assets to show persistence in their relative performance. Despite convincing data, momentum hasn’t been widely embraced as an investment strategy.
In a recent speech, Federal Reserve Bank of Dallas president Richard Fisher aptly remarked, “Stock market metrics such as price to projected forward earnings, price-to-sales ratios and market capitalization as a percentage of GDP are at eye-popping levels not seen since the dot-com boom of the late 1990s.”
Stocks are the most volatile asset class in the short run — but the most stable asset class in the long run, according to Jeremy J. Siegel. The Wharton professor also warns that the CAPE ratio's pessimistic predictions are based on biased data.
With the Shiller P/E for the S&P 500 currently standing at a 21.5 (approximately 30% higher than its long-term average), many value investors, including Cliff Asness of AQR Capital Management, have adopted a cautious stance toward US stocks.