Measure
CAPE
Price divided by the average of ten years of inflation-adjusted earnings.
Definition
Price divided by the average of ten years of inflation-adjusted earnings.
How to read it
Smoothing a decade of earnings is intended to strip out the business cycle from the multiple.
What it does not tell you
Its relationship with subsequent returns is weak at short horizons and its level is not comparable across eras — accounting standards, buyback behaviour and sector composition have all changed the denominator's meaning.
Applied in 4 articles
4- Can Valuation Predict Returns? Using CAPE and Earnings Yield as a Long-Horizon Compass
- VXUS vs VOO: 9,336 Stocks Between Them and Exactly One in Common
- When to Stop Investing: The Art of Risk Management and Strategic Cash
- If the Nasdaq 100 Corrects 20%, Will Long-Term Investors Lose Money? (10+ Year Analysis)
Every figure computed with this measure on this site follows the conventions set out in the methodology. All measures →