For the stock market to produce anything close to its long-term historical average return, the cyclically adjusted price earnings (CAPE) ratio will need to remain at its current high level.
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Many analysts overlook one crucial factor when estimating the stock market’s future return: Changing valuations.
That’s surprising, since you would otherwise think that valuations — how much investors are willing to pay for a dollar of earnings, dividends, book value, cash flow, etc. — would be the centerpiece of any such estimation. But analysts all too often focus instead on factors such as the growth rate of earnings.
Those…
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