Foreword
Shiller P/E Ratio is one of the P/E Ratios commonly used nowadays for a market valuation projection indicator for estimating the long-term future profit in the next 10 – 20 years.
The same functionality as the Buffett Indicator is to determine whether the market overheat or not.
Click here for further details on Buffett Indicator.
The calculation of this index is based on the S&P 500 index for running a valuation.
How to use this tool?
To estimate, we shall require the formula first.
Price / Average of the last ten years of earnings and adjusted by inflation.
Usually saying when the P/E Ratio is relatively lower, the better the entry time. While in some situations, this Ratio might appear extreme numbers that relatively do not fit pretty well.
Click here for further details on P/E Ratio.
Here’s the advantage of the Shiller P/E Ratio
The short-term P/E Ratio is an excellent indicator for calculation, but in the long-term prediction, the P/E Ratio has too many factors to affect the result, for instance, inflation.
Shiller P/E Ratio could reduce the economic cycle and business cycle effect and adjust the inflation factor.
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