Shiller on Stocks

Professor Robert Shiller CAPE ratio has marked U.S. stocks are overvalued for some time. Shiller’s also been saying that they haven’t been this overvalued except for the two great market peaks of 1929 and 2000. Still, he’s probably not someone you want to take investment advice from. In this interview, he seems to take all sides on the question of whether to invest in stocks. The conclusion you should draw is one we reached some time ago. Valuations are useful as one part of a package of data for evaluating stocks. But stocks don’t change direction suddenly because they reached someone’s definition of over- or undervalued. There are a lot of other forces at work.

Yet, Shiller doesn’t think people have extravagant expectations for the stock market, which is key to a bubble:

I define a bubble as a social epidemic that involves extravagant expectations for the future. Today, there is certainly a social and psychological phenomenon of people observing past price increases and thinking that they might keep going, So there is a bubble element to what we see. But I’m not sure that the current situation is a classic bubble because I’m not certain that most people have extravagant expectations.