Investment Wisdom from the Masters: Risks and Relative Values in Diversified Global Portfolios



The CFA Institute Annual Conference is an unrivaled opportunity to access high-quality, unbiased educational content that equips investment professionals with the latest thinking on critical industry issues. The 72nd CFA Institute Annual Conference will be held in London on 12–15 May 2019.

Is the stock market overvalued? That depends on who you ask.

Nobel Laureate Robert J. Shiller of Yale University answers “yes,” while Jeremy J. Siegel of the Wharton School, University of Pennsylvania, believes “no.”

When the two economists took to the stage in Philadelphia at the 70th Annual CFA Institute Conference, Gillian Tett, US managing editor, Financial Times, aptly teed up the discussion on investment theory, financial valuations, markets, and the economy saying, “We are lucky enough to hear from two important luminaries, if I dare not say lions, of the financial economic world over the last few decades.”

Indeed, they did not disappoint. After all, they have been squaring off for five decades.

Anyone who follows the market and financial news will know that Shiller and Siegel hold two distinctly different perspectives.

In his 2013 article, Clash of the Cape Crusaders, John Authers noted that Shiller’s CAPE ratio, which uses earnings data stretching back to 1871, “has gained wide acceptance as an accurate gauge of the market. . . .But the CAPE is under attack from another renowned economist, Jeremy Siegel, who contends that it is based on faulty data.”

When it comes to valuations, they continue to stand on opposite sides of the debate.

RELATED CONTENT: The Shiller CAPE Ratio: A New Look” by Jeremy J. Siegel

So, too, do many CFA charterholders. When Tett asked delegates for a show of hands as to who thinks the US equity market is overvalued and thus leans toward Shiller’s perspective, versus those who take Siegel’s view that stocks are not overvalued, the audience was evenly split.

The stock market in the US is highly priced,” said Shiller, author of Irrational Exuberance.

Siegel, the author of Stocks for the Long Run, remarked that “The low-interest rate environment we have been in — and I think will be in for many years — makes stocks still definitely the asset of choice for your portfolio.”

When Tett asked Shiller whether he is working on the assumption, like Siegel, that interest rates and inflation are going to stay low for a long time, he raised the notion of “narrative economics.”

“The fact that long rates are so low suggests that there is a general feeling that we are in for a long period of secular stagnation,” Shiller said. “There is a secular stagnation narrative. This is not science, it’s a narrative, nobody can prove it right or wrong, but people believe it now. The last time we had this narrative was in the Great Depression.”

What about the so-called “Trump bump” in the stock market?

Siegel believes it’s the Republican agenda that sent the markets up and supports the market today, not the Trump agenda.

“The market likes the Republican agenda,” Siegel said. “It’s not that they like the Trump agenda.”

Additional reading and viewing: 

Experience the 70th CFA Institute Annual Conference online through the Virtual Link. It’s an insider’s perspective with live broadcasts and recorded video archives of select sessions, exclusive speaker interviews, discussions of current topics, and updates on CFA Institute initiatives.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo courtesy of W. Scott Mitchell

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