No. of Recommendations: 3
"Since 1872, the S&P 500’s annual starting PE (using trailing 12-month earnings) and forward 1-year returns have an R-squared of 0.01—essentially no causality! R-squared using three- and five-year returns is 0.03 and 0.02. That means just 3% and 2% of US stocks’ forward three- and five-year returns, respectively, even possibly stem from PEs," wrote Fisher. "Randomness. Believing the reverse is just dumbness."
R-squared is a measure of the degree to which one thing determines another. A reading of zero means "A never causes B, while 1.00 signals A always causes B," says Fisher.
