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The vagaries of using CAPE to forecast returns

from CFA Institute's Enterprising Investor

The cyclically adjusted price/earnings (CAPE) ratio is one of the most reliable indicators of prospective long-term stock market returns. First proposed by Benjamin Graham and popularized by John Campbell and Robert Shiller, the formula is deceptively simple, dividing the current price of a stock market or single stock by the average earnings of the last 10 years — both adjusted for inflation. more

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