How dear are US stocks?

The Cape ratio is a popular metric for valuing stockmarkets. Cris Sholto Heaton explains how it works, and what it tells us about the American market.

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The cyclically adjusted price/earnings (Cape) ratio is a popular metric for valuing stockmarkets, especially among investors who believe that the US market is grossly overvalued by historical standards. Cape, which was devised by Robert Shiller of Yale University and John Campbell of Princeton University, measures the value of the market relative to average earnings over the past ten years, adjusted for inflation.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.