JMF Capstone Wealth ManagementCAPE 10 Ratio In Need Of Context – JMF Capstone Wealth Management https://www.jmfcapstone.com An Alabama registered investment advisor Fri, 21 Nov 2025 19:30:19 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 CAPE 10 Ratio In Need Of Context https://www.jmfcapstone.com/2016/05/09/cape-10-ratio-in-need-of-context/ https://www.jmfcapstone.com/2016/05/09/cape-10-ratio-in-need-of-context/#respond Mon, 09 May 2016 09:00:56 +0000 http://evolvemypractice.com/?p=2778 The Shiller cyclically adjusted (for inflation) price-to-earnings ratio—referred to as the CAPE 10 because it averages the last 10 years’ earnings and adjusts them for inflation—is a metric used by many to determine whether the market is undervalued, fairly valued or overvalued. Employing a 10-year average for earnings, instead of the most current 12-month earnings,...

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]]> The Shiller cyclically adjusted (for inflation) price-to-earnings ratio—referred to as the CAPE 10 because it averages the last 10 years’ earnings and adjusts them for inflation—is a metric used by many to determine whether the market is undervalued, fairly valued or overvalued. Employing a 10-year average for earnings, instead of the most current 12-month earnings, was first suggested by legendary value investors Benjamin Graham and David Dodd.

In their classic 1934 book “Security Analysis,” Graham and Dodd noted that traditionally reported price-to-earnings ratios can vary considerably because earnings are strongly influenced by the business cycle. To control for the cyclical effects, Graham and Dodd recommended dividing price by a multiyear average of earnings and suggested periods of five, seven or 10 years.

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