“The CAPE is calculated by dividing stock prices by
average earnings over the prior decade, all adjusted for inflation. The ratio
for large U.S. stocks in April was 27, while the long-term average since 1881
is 16.6, according to Mr. Shiller’s data…
Investors are probably on solid ground if they lower
their expectations for the potential returns on their stock investments when
the ratio is well above average, as it is now. Under these circumstances, it
might be sensible to increase your saving rate.”