Investing in an Overpriced World


“What should an investor do when all asset classes appear overpriced? The 10-year U.S. Treasury bond currently yields about 2.6%, much lower than the 5% historical average and only slightly higher than the Federal Reserve’s 2% inflation target. Yields of lower-quality bonds are unusually meager compared with those of traditionally safe Treasurys.

For equities, the cycle-adjusted price/earnings ratio, or CAPE—the valuation metric that does the best job in predicting future 10-year rates of return—is about 34. That’s one of the highest valuations ever, exceeded only by the readings in 1929 and early 2000, prior to crashes. Today’s CAPE suggests that the 10-year equity rate of return will be barely positive.”


Burton Malkiel, the Princeton professor and legendary author of A Random Walk Down Wall Street, has some advice for investors. As always, Malkiel is understandable, simple and sage.

Let me simplify it even further for you:

Be broadly diversified, rebalance your portfolio regularly, and minimize your costs.

There can be little doubt that my confirmation bias is hard at work, nodding its head up and down to Malkiel’s beat. But the simple truth that I am biased does not make hsoi advice any less valuable; I am biased because over the decades I came to recognize the reality of what Malkiel, Ellis, Bogle, and so many others figured out as academics.

I will have some more on this in the near future, but it is worth your time to read what he has to say in full.



How to Invest in an Overpriced World
Burton G. Malkiel
WSJ, January 22, 2018

MiB: Burton Malkiel and the Random Walk April 1, 2017


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