Archive | November, 2017

Podcast 12: Robert Shiller – CAPE Crusader

In the latest episode of the Canadian Couch Potato podcast, I speak with Robert J. Shiller, professor of economics and finance at Yale University, and winner of the 2013 Nobel Prize in Economics.

Prof. Shiller was in Toronto recently for the launch of the BMO Shiller Select US Index ETF (ZEUS), a fund that selects US stocks using a methodology based on Shiller’s CAPE ratio. The acronym stands for cyclically adjusted price-to-earnings: unlike traditional P/E ratios, which usually use only the previous 12 months of earnings, CAPE uses the average of the previous 10 years. The idea is to smooth out any short-term aberrations and provide a more useful measure of a company’s value.

The CAPE ratio is widely followed, not just for individual companies, but for the US market as a whole. During the interview I mention that a 2012 study by Vanguard found the CAPE ratio was the one of the most useful tools for estimating long-term stock returns—although even then, it explained less than half of subsequent performance.

Prof. Shiller has also lent his name to the Case-Shiller Home Price Indexes,

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