The CAPE Multiple is at 37 currently and the S&P 500 PE ratio is at 30. Both are now in rarified territory that you see really only during the dot com boom period and the pre GFC period. Some market strategists are approaching the data with a reasonable attitude and saying that expectations for forward 10 year returns should be low. Goldman Sachs just did that and a few others have done it. Its something mungofitch and others have also talked about on this board. But outside of people like Grantham who can reliably be called on to predict a huge bubble burst for years on end, most market pundits seem like they are okay living in the risk.

I have been struck the last couple of days by the number of videos I have watched where analysts are being asked by business reporters or on CNBC about market valuations where the answer felt reminiscent of 1997-1999. Answers have focused on things like that the CAPE has not predictive value 1 year out (true), or that people shouldn't get overfocused on valuation because it really only matters at the extremes and we aren't there yet, or that you should focus on earning growth, which looks robust, and not worry too much about valuation. Its an expensive market but investors are going to have to get comfortable living in that market. I remember when Janus, the mutual fund, had an enormously successful global fund back in the 90s. Around the mid to late 90s, the hugely successful fund manager who ran that fund came out and explicitly said that they don't think about valuation when they make their selections. I remember that starkly because I was in business school at the time and have invested some of my parent's retirement money in that fund. It was a dot com boom and you were missing out on a lot of high return investments during that period if you had valuation as a criteria for not-investing. 5 years later, it didn't turn out well for this fund that had a great long track record of outperformance. I am similarly finding that a lot of analysts are mitigating the importance of valuation because your alternative of getting out of the market doesn't seem palatable. Not when AI is booming, interest rates are headed down, and people are not over leveraged.

I am not sure what I want to do myself in this environment. It has started to feel to me like we are right at the transition point where high but understandable valuations are starting to diverge into excessive valuations. Or at least that is what CAPE and the PE multiples suggest. But it might take signs of increasing leverage before I can conclude that it feels like a true bubble ready to pop and we aren't there yet. Are we in that phase where there is still a year or two of growth left or should I be starting to take more active risk mitigating measures?

I know that true value investors will care more about individual stocks and the valuations and prospects of those individual companies rather than overall market valuations. As long as you can find attractive deals at reasonable prices, that is the best risk mitigation. But the things that looked like companies with reasonable valuations back at the beginning of this year are now starting to look like hampered businesses (e.g, INTC, DG, CVS) that have reasons to be valued the way they are. I don't know if that is just a negative framing that has creeped into my brain because of overall concerns about market valuation.

I am curious about how others are looking at the current market valuation and how you are interpreting them.