Wrap up on the drawbacks of CAPE. A fair level for price earnings ratios has changed over the years.
Investors are reading CAPE all wrong.
Price earnings ratios are a frail and shifting basis for determining fair value. They do not force investors to think through all the factors that go into a deep assessment of fair value.
Price earnings ratios are simply a rule of thumb. They can lead you astray. But what is worse, they are becoming less and less valid with every passing year.
There is a lot of talk currently about the underperformance of value stocks compared with growth stocks over the last fifteen years. In fact, value investing has performed well against all other styles. This seeming contradiction comes from the fact that value investing and investing in value stocks are not the same thing.