No. of Recommendations: 7
Thank you for the kind words. It was incredible that much of the 20+ year community was about to evaporate prior to Shrewd’m. I didn’t think twice and got to work reflexively. I’m grateful to Oscar255414 and others that have helped.
Consider a hypothetical scenario where the S&P 500 yields 0% per annum over the next decade.Sure, but I presented the ratio of the large cap CAPE to small cap CAPE because the correlation with their relative future returns, is a profoundly strong correlation - even stronger than the individual CAPE predictive power.
To see the S&P600 CAPE ratio separately, along with its historical values:
https://substackcdn.com/image/fetch/f_auto,q_auto:...For the S&P600 CAPE it stands today at a lowish value that was only lower 10% of the time back to 2000 (during the 2009 recession) and was lower 40% of the time looking back to 1983.
In a nutshell the S&P600 is moderately undervalued so you can expect an
above “average S&P600 10-year” return from here, noting that the “average S&P600 10-year return” itself is already around 2% higher than what you will expect on average for the S&P500
even if they had the same relative valuation owing to small caps growing faster than large caps over time.
Small caps got a total return of about 8% above inflation long-term, thus around 8% if bought at an average CAPE level in the past.
You can also study the current margins of the large caps and small caps relative to their individual own historical margins also. The large cap margins are really high right now compared to their historical average level, and the small cap margins around their own average historical level.
- Manlobbi
