In The Shiller Ten-Year P/E Ratio I wrote, “The Shiller P/E ratio is computed by taking the current price and dividing by the average inflation-adjusted earnings from the previous 10 years. This measurement is also known as the cyclically adjusted PE ratio (CAPE ratio), or P/E 10.”
Charlie Tian’s GuruFocus.com has a nice article on Shiller P/E – A Better Measurement of Market Valuation in which they write:
- Use the annual earnings of the S&P 500 companies over the past 10 years.
- Adjust the past earnings for inflation using CPI; past earnings are adjusted to today’s dollars.
- Average the adjusted values for E10.
- The Shiller P/E equals the ratio of the price of the S&P 500 index over E10.
The also have this chart showing the historical and current value of the Shiller P/E:
And if you would like to learn how to apply these numbers:
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