It seems detractors are asking CAPE to clearly tell us “in or out” applied to just one asset class or market. But is that fair? Or even rational? No.
So what sort of missed market gains would that have translated into for this individual? As referenced at the top of this paper, 780%.
The tourist won the hand, but does that mean he made a good bet? Of course not. He transformed his odds of winning the hand from roughly 70% to an almost certainty of losing by taking another card.
In this scenario, let’s compare our switching systems to a new strategy in which we invest in the cheapest 25% of global stock markets as identified by the CAPE ratio.
CAPE = Cyclically adjusted price-to-earnings ratio, Shiller P/E, or P/E 10 ratio (wikipedia)
Anheuser-Busch pays out $4.40 per share in dividends, and has raised it every year under 3G management. At a price of $101 per share, that is a 4.35% starting yield.
Someone buying Anheuser-Busch is setting themselves up for a 4% dividend yield and 8-9% annual returns on a pre-tax basis.
The earnings of $2.10 do not reflect Anheuser-Busch’s earnings power because the figure is clouded by enormous integrative expenses with SABMiller, and the dollar strength matters because Anheuser-Busch Inbev reports its earnings in Euros
Next year, Anheuser-Busch is going to report profits of around $5.75 per share. That is a P/E ratio of 17.5x earnings.
*good, steady dividend, reasonable growth assumptions
IBorrowDesk – Nice to have informations like Fees about short selling (link)