Valuation-Informed Indexing #517: Did How the Stock Market Works Change in 1996?

I’ve posted Entry #517 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Did How the Stock Market Works Change in 1996?

Juicy Excerpt: “Earlier in my career I was kind of more interested in that sort of approach. When we look at the historical data–and Robert Shiller has that historical data going back to 1871–it’s kind of remarkable how well future market returns related to, like Shiller’s CAPE ratio, the cyclically adjusted price/earnings ratio–that when it was above average, you lower your stock allocation and vice versa. And I think Shiller’s research on that was just in the late 1990s. Once he kind of identified how well that relationship worked, that’s pretty much the time it stopped working, because in the past 25 years or so, markets have been overvalued by that measure except for the brief period around the financial crisis in late 2008, going into 2009.