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FFH

I think the Shiller PE is the best, but still imperfect way to look at the market price to value. Lets ignore how top heavy the S&P 500 has gotten and how Shiller doesn't account for tax or interest rates and assume you could use it as a market timing tool. If you did, you'd have to be out of the market for years on end, even decades, all the while missing growth in S&P earnings until you get back in. I don't see any mechanical rule that is possible to follow from it. For example, if you get out at a 30 PE and back in at a 20 PE, it would have gotten you out in 1929 just before the peak but put you in again in 1930 to ride it down to a 70% loss in 1931. Or out in April, 1997 (800) and not back in until Oct 2008 at 1000. That looks great until you realize that adjusting your basis for dividends lowers it to $570 and increases your returns to 5% annualized. So if you had the incredible self-will made of pure steel making decisions emotionlessly on positive expectation mathematics that is necessary in order to be able to sit out the market for 11 and a half years you would have, roughly broken even holding bonds instead of the market? In reality if you are going to actively invest, measures of how cheap or expensive the market is shouldn't matter at all. You either find attractively priced opportunities, or you build up cash and keep looking in different places. If the S&P 500 is overvalued, that doesn't mean mid-caps or small caps are, and if they are all generally overvalued that doesn't mean there aren't still a few great opportunities in all of them. Buffett clearly described the internet bubble as it was happening, but he didn't sell his stocks. No one did.