Sat, Jul 19, 2014 8:49 AM EDT 0:45
How Long Can This Market Stay Overvalued? The Dow Jones Industrial Average is at another record high. As stock prices soar higher, their price/earnings ratios increase, making the stocks more "expensive." The obvious drawback to buying stocks in an expensive market is that there is a higher probability of larger losses in the event of a pullback, and long-term returns can be muted. Many commentators are currently focusing more attention on Yale Professor Robert Shiller's "Cyclically-Adjusted Price/Earnings Ratio" or CAPE, rather than the trailing twelve-month P/E ratio, which is currently 19.6.