By Ben Carlson, CFA
A Wealth of Common Sense
Stock market valuations may not make sense to a lot of people right now, but valuations often don’t matter much in the short run.
With a current CAPE ratio approaching 30x yet again—it only got as low as 24x in March—investors should definitely expect lower long-term returns from current levels…right?
This certainly makes sense in theory, but averages tend to mask the underlying individual outcomes over any single period.
The general relationship still holds, but there have been relatively good outcomes from high starting valuations and relatively bad outcomes from low starting valuations. No one lives their life in the averages.