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What do I do? Full-time independent stock market analyst and researcher:

Check the comparative stock list table on my Stock market research platform under curriculum preview!

I am also a book author:
Modern Value Investing book:

More about me and some written reports at the Sven Carlin blog:

Stock market for modern value investors Facebook Group:

In this video I continue with my analysis of the stock market risks, especially the S&P 500. I discuss how the PE ratio works, why it is important. Also, in addition to the price to earnings ratio I discuss also the CAPE ratio and what will be expected stock market returns over the long term. The CAPE was introduced by professor Robert Shiller.


Henry Cheng says:

Hi. Thank you for this nice videos. I just wonder do you know if we can find the exact composition(percentage of each stock) of sp500 so that we can calculate the pe ratio for sp500 by myself? As I can get the similar chart that you show from the video but I just do not know if it is trustworthy.

RatedRudy says:

I analyzed your video for quite some time. you are right on most part, but your S&P 500 Level vs PE ratio graph is not correct… There is NO basis for what you are saying… This graph is ONLY drawn based on recent statistics, which would not mean AT ALL that it will be followed in the future….. there is NO correlation between S&P 500 level and its PE ratio…. so when PE ratio goes to its nominal value of around 10 or 12, it doesn't mean the level will drop to 1700…. if this was the case, going back for 50 years, we should've seen average Level's mean being around 1700 for majority of the time, since average PE was around 10 or 12…..!!!!. But clearly this is not the case…. Yes, the PE's mean is around 10 or 12 historically, but the Level is always going up on a long run…. so, again, you are correct that PE ratio will go to its mean, and yes the level will drop, but based on historic level data, there is NO way for it to drop low to 1700…. It will drop low, but not that low…. but how much low, no one knows…..

Jelle says:

Another great video. Thank you for making this serie about risk.

jack says:

nike and coca cola will be fine for the next 100 years (sentiment speaking) i buy both . Great video as always

Yaser Al-Saffar says:

If you take the Wilshire 5000 share of GDP, Buffett's preferred indicator of stock market overvaluation, and adjust for interest rates the stock market looks fairly priced.

Hopefully a higher than expected inflation/interest rates (I think unlikely) or disappointing earnings (maybe more likely as forward pe assumes 50% growth) will cause a fall. Or maybe someone will notice that US federal debt is still growing faster than the economy.

The CAPE ratio concerns me because it's heavily influenced by the crisis in 2008/09 as it looks at 10 years history earnings.

Reinhard says:

Maybe the reason why Buffet became successful is that he invested. So no godlike thing but something very silly. Maybe if someone just do that, it's difficult not to do well.

I had some experience in trading lately. What I realized is that it has nothing to do with investing. Your whole world is been reduced to charts. You trade sentiment which you cannot predict and can change any minute. You lose everything about the real economic world. You are in a casino. I believe it is possible to become a good trader, but to be honest it's too limited for me and it costs a lot of time. After making a table about advantages and disadvantages for both I came to the conclusion that investing has more advantages.

PeriMCS says:

Who is watching this in 2038 while being very rich?

N V says:

New stuff from Ray Dalio on India, you may have read it already. I couldn't get the last Q&A, he says there is no systemic risk, no looming debt crisis!! Article:

Vancouver Real Estate says:

Sven the PE ratio will be high when interest rates are so low. Its relative to interest rates. W/rates as they are stocks are actualy fair value (in my opinion)

Rahul Chahal says:

Awesome, this is the way the Trillion $ investors invest. Inflation directly effects interest rates which directly impact stock valuations.

Scott S says:

Love the contrarian view Sven… I continue to trim some of my less desirable positions, while building my positions in a couple miners, as well as a couple non-US equities. While doing both, the trend is my cash position in increasing. I have a target for what equities I want to continue to hold and what percentages, with a goal of getting there by end of summer. Might speed things up or slow things down depending on how I'm feeling about things overall. Thanks as always for the quality content!

Green Mountain says:

What no links to support your numbers or charts ??? tnks.

Jay Dee says:

The Fed is raising interest rates which means the end of free money. Companies are highly leveraged. To refinance their debt at higher interest rates their earnings will fall and they will have to lay off workers. Means the unemployment rate will start to rise. And with US trade deficits and the US debt at historically unsustainably high levels the US dollar will tank. So will the economy. Worldwide. We are headed for a crash. The current bubble is already deflating. It will pop.

Jason Bequette says:

Hey Sven, thanks for another great video. In your opinion what would the biggest risk be with stocks like WPG, CBL, and XIN?…low price/book, high dividend yield, low p/e ratios.

Manos Koukourakis says:

Thank you very much for providing the formulas on screen as well as explaining the correlation between P/E and ROI from a long term perspective.

unfrieden says:

Hello Sven,
As I've said already: I like your videos in general alot – but I think the presentation could be improved.
A few quick tips from a viewer's perspective, if you don't mind. I hope that will boost your YouTube numbers.
– Use higher resolution images if available
– Leave the text/caption on the screen a lot longer for people to be able to read them while you talk
– Take a bit more time to explain such concepts like "why does a PE ratio of 25 equal a 4% earnings yield"
– Hard to explain, but your videos could be a bit more structured – they are narrative in nature (which is not bad at all) – but maybe think of 3-6 headlines/concepts you want to talk about in the video and move through them and maybe use a caption

Hope your channel grows.

Peter Hagnäs says:

The chart you show with PE´s from different countries, after about 6 minutes in, did you make it yourself or can I find it somewhere? Interested in comparing Sweden to the rest of the world…

Also, with regards to the CAPE-ratio, or the Shiller PE. I would very much recommend anyone to follow Robert Shillers lectures on youtube. It is truly a great benefit being able to participate in this highly intelligent and inquisitive persons education for free!

Mr Mojo says:

Great Vid, thanks Sven

TheMightyHarihar says:

Also remember, it can always go higher and it can always go lower. Who is to say we won't surpass the P/E ratio of the dot com bubble, with euphoria in the market and relatively low interest rates, it is very possible.

TheMightyHarihar says:

It is a balance between the pace at which the fed raises interest rates and the earnings growth on stocks. Right now both are going up, but once earnings level off and rates rise, expect a huge correction as money moves out of stocks into fixed income. This bull still can run hard into 2021-2022.

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