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Robert Shiller Vs Prof Siegel CAPE Ration

September 2, 2013

Clash of the Cape crusaders

Robert Shiller's warnings about the internet stock...also doubled between 2003 and 2007. Robert Shiller "Emotions and heightened attention to...desire to get into the game," warned Robert Shiller in 1999. "Such is irrational exuberance... By John Authers

Above is the link to the article in and some perspective on that article.

So I must say this is an interesting read. Beyond the interesting read, don't know how to really use this. Now to complete the analysis, Behavioral Finance professors perspective should have been included.

Ask the Verizon Board and the Vodafone Board or the Microsoft and Nokia Board. They each just did one of the biggest transactions in their Board. They probably ignored the analysis mentioned in the article in determining the value of the transaction.

I am just speculating, but probably they must have used DCF analysis in determining the value of the deal. Most important transactions are done with DCF and the shortcuts of how to determine the value just does not exist in the real world.

Now both well known academics came up with the theory and both happen to be right at the respective time. One of the biggest reasons for stock market growth in 1990s was the tech boom and the increase in productivity in economy due to tech boom. Obviously Prof Siegel proved to be right. This boom lead to bubble and crash of the stock market Prof Shiller proved to be right. Prof Shiller has been saying about the bubble since 1996 and he was wrong for 4 years until the market crashed. With the crash, his popularity grew.

Now coming up with various shortcuts in determining the value may be helpful and ofcourse the historical perspectives gives us analysis on how the markets have behaved during various cycles. Somehow I have not heard financial advisers advising their clients on divesting or investing in the stock markets based on these theories. Sometimes have heard financial advisers use Prof Siegel's theory for advising clients for investing in the stock market. But they have used that theory consistently in the bull market and bear market.

I am a big fan on the analysis of both the academic professors and regularly read their articles, but cannot take their analysis to my company management as a basis of divestment or investment in the market.