Irrational Exuberance: Shiller's Guide to Bubbles
Shiller published Irrational Exuberance weeks before the dot-com crash. His one ratio still works, and what it is saying about US markets in 2026 is uncomfortable.
What CAPE has signalled at famous turning points
Shiller CAPE: averaged 10-year inflation-adjusted earnings. High readings predict thin decade-ahead returns.
Key takeaways
Stock market bubbles often arise from powerful narratives rather than economic fundamentals, leading to inflated valuations.
The Cyclically Adjusted Price-to-Earnings (CAPE) ratio helps investors determine if market prices are historically high or low.
Recognising the feedback loop of bubbles can help investors avoid getting caught up in market hype.
UK investors should use the CAPE ratio to gauge long-term market returns rather than chasing short-term speculative stories.