Investing: Goldman Sachs destroys one of the most persistent myths about stocks

Investing: Goldman Sachs destroys one of the most persistent myths about stocks

A version of this post was originally published on TKer.co.

Let’s talk about the CAPE ratio. It’s one of the most widely-followed stock market valuation and investing metrics. It’s being talked about more as investors wonder whether stocks are poised to lose ground in 2022. Unfortunately, the signal of doom it supposedly sends is a myth.

CAPE, or cyclically adjusted price-earnings, was popularized by Nobel prize-winning economist Robert Shiller. It’s calculated by taking the price of the S&P 500 and dividing it by the average of 10 years’ worth of earnings. When CAPE is above its long-term average, the stock market is thought to be expensive.