Shiller CAPE (PE10)
CAPE
What it is
Cyclically Adjusted Price-to-Earnings ratio developed by Robert Shiller. Compares the current S&P 500 price to AVERAGE earnings over 10 years (inflation-adjusted) to neutralize economic cycles. Most respected long-term valuation barometer.
How to read it
Historical average CAPE (since 1881) is ~17. Above 30, the US market is historically expensive — correlated with lower 10-year forward returns. Below 15, historically very favorable entry point. DOESN'T TIME the next correction.
Common reference points
- Historic bargainCAPE < 15
- Average valuationCAPE 15 – 25
- ExpensiveCAPE 25 – 35
- Extreme overvaluationCAPE > 35
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Main criticism: CAPE includes the collapsed earnings of 2008-2009 in its decade average, exaggerating perceived valuation. Structural norms have also evolved (more tech, higher margins, decade of low rates). Relevant for long-term TREND, not timing.
Other measures — Macro — valuation
Educational content. Polaris is not a registered investment adviser and makes no recommendation.