MODERN VALUE INVESTING: 25 Tools to Invest With a Margin of Safety in Today's Financial Environment

by Sven Carlin

There are a number of things an investor can do to take advantage of the CAPE ratio: Rebalance across sectors and countries As time goes by, CAPE ratios vary enormously across different sectors as sector profitability is impacted by its own cyclical patterns. All sectors experience wild swings in sentiment and, consequently, in their CAPE ratios. Long-term value investors can reap huge rewards by carefully rebalancing between cheap and expensive sectors over time. Barclays’ and Robert Shiller’s research has shown that rebalancing an S&P 500 portfolio according to relative sector CAPE ratios would have outperformed the S&P 500 by 4 percentage points per year since the CAPE ratio was introduced in 1988.