In a recent interview in Forbes, Nobel laureate Robert Shiller says that the stock market is not as overvalued today as it was in 2007 — but it’s getting darn close.
Yale Economist Robert Shiller says that some tech stocks look and feel like they are in a bubble right now, but that it doesn’t seem as bad as the late 90s tech stock bubble. Shiller tells Bloomberg that the market overall is “on the high side and it’s being driven by technology recently, but it’s not like it was [in the late 90s].” He notes that his 10 year cyclically adjusted price/earnings ratio was nearly twice as high back then as it is now for the broader market. Shiller also talks about his belief that long-term value investing is the best approach to beating the market. And he talks about how using such an approach means you shouldn’t be impacted too much by high-frequency trading issues.
Nobel Prize-winning Yale Economist Robert Shiller recently appeared on WealthTrack and offered some of his thoughts on where he’s been finding value in the stock market.
The world often wants top investors and economists and strategists to give advice. But what’s the best financial advice that those great minds have received?
The Wall Street Journal posed that question to a number of top thinkers recently. The respondents include Nobel laureates Robert Shiller and William Sharpe, as well as investment gurus Carl Icahn and Seth Klarman. A few of the responses dealt specifically with not falling prey to short term thinking. “An investor should think like a business owner, not a renter,” said Morningstar CEO Joe Mansueto. “Most businesspeople don’t get up in the morning and ask whether they should sell their business that day. … They show patience and persistence and try to understand their underlying business better so they can earn the greatest return for the longest period of time.” Investors, he says, “are in many ways misled by stock-market volatility. The values of the underlying businesses just don’t change as quickly as stock prices do. You really don’t have to watch those changes hawklike day after day.”
Jane Mendillo, who heads up Harvard’s endowment, said “Take the long-term view”‘ was the best advice she ever received. “If you take the long-term view, you will see things others miss,” she said. “Nearly everyone thinks about next month, next quarter. Jack Meyer, who ran [the] Harvard endowment for 15 years, taught me that when you think about multiple years or even decades you see opportunities to create value others might not see, and you make different judgments today as a result.”
While many bears have pointed to the 10-year cyclically adjusted price/earnings (CAPE) ratio as a reason to avoid U.S. equities, Yale Economist and recent Nobel laureate Robert Shiller — who helped popularize the metric — says U.S. stocks still “should be a part of a portfolio”. Shiller tells Bloomberg Surveillance that, though the U.S. market is relatively highly priced according to the CAPE, it’s “not that overpriced”, and given the alternatives he thinks investors shouldn’t avoid U.S. equities. Shiller also talks about active vs. passive investing, saying, “I think that one can in the long run do better” than passive index funds, particularly with a value-oriented active approach.
“I’m not really saying don’t invest in stocks,” Shiller tells CNBC’s Futures Now. “[But] don’t expect miracles. He says the market’s valuation looks “high by historical standards, but it’s not super-high. I’d say it’s suggesting — based on historical evidence — real returns of something like 3 percent a year for the next decade.”
Shiller also counters Wharton Professor Jeremy Siegel, who recently criticized the use of the 10-year cyclically adjusted price/earnings ratio — Shiller’s preferred valuation metric. “He’s a smart guy, he makes good points, Shiller says. “He tends to be a little bullish, I think. But the measure that he uses is going quite far from traditional price-to-[earnings ratios]. He is proposing a national income and product account definition of earnings, rather than earnings that correspond to the stocks in the S&P 500. And even if you take that, suppose we accept that, then the market is still not low-priced!”