Online stock returns predictor based on Shiller’s P/E10

In the previous post I made note of Robert Shiller’s P/E10 cyclically adjusted price earnings ratio, a valuation method that smooths out earnings fluctuations to help provide a better picture of the market’s value. Now I’ve found an online stock return predictor calculator that takes P/E10 a step further by using it to predict S&P 500 returns at 10 to 60 years into the future.

To use it, simply move the slider to select a P/E10 value (and corresponding S&P 500 value) and then press “calculate” to see the expected real, annualized percentage returns going forward. The results are shown for various probability levels – from “Best Possible” to “Most Likely” to “Worst Possible.”

With the market trading at a current P/E10 value of 13, the calculator predicts that the most likely returns over the next 10 and 20 years will be 7.2% and 6.9%, respectively. But they could be as high as 13.2% and 10.9% (“Best Possible”) or as low as 1.2% and 2.9% (“Worst Possible”).

If you play around with P/E10 values below 10 and look at the predicted returns, you’ll quickly see why Shiller – who’s currently out of the market – says he’s “sure to get back in” if the market sees those levels.

In the meantime, I’ve added a link to the stock return predictor under the “Other Related Resources” links section of this blog.

Related posts:
Shiller: The market hasn’t been this cheap in decades
Market’s long-term rewards potentially “staggering”