This article was originally published in our weekly newsletter.

Robert Shiller, an Economist and professor at Yale, is someone you may want to know.

He is best known for the CAPE (Cyclically Adjusted Price-Earnings) metric, which uses inflation-adjusted earnings of the stock market over the last ten years to smooth out the effects of business cycles on earnings.

In other words, he figured out a way to cut through a lot of the noise (data manipulation) and look at the stock market’s health more holistically and accurately.

He found that when markets are overpriced, the years that follow tend to be volatile, making it harder for investors to grow their wealth.

Consider the chart below, which utilizes his CAPE metric (also known as the Shiller PE Ratio).

Look at the various peaks and think about what happened next.

Notice how it peaked in 2000, 1964, 1929, and 1906?

The market produced an average return of 0% for the 10+ years that followed.

We don’t know how high the CAPE Metric (Shiller’s PE Ratio) will go before the next market crash or economic recession.

We don’t know if we are about to enter another flat-market cycle.

All we know is that there are signs (CAPE metric among others) suggesting it could get rough later this year, next year, in three years, or at some other time.

The Takeaway

No one can time the market.

Below is a graph with arrows showing moments in the 90s when many investors, including professionals, were concerned about the next crash.

Each arrow shows a false positive (when people thought the market was crashing, but it wasn’t).

Instead of a significant market crash, the market rebounded quickly (until 2000).

Don’t get caught in trying to time the market.

Think long-term.

Have a portfolio with high-quality companies that were purchased at a reasonable price.

Have a plan for sustaining yourself and your wealth during a potential prolonged flat market (10+ years with no returns).

Look for my email on Tuesday for a retirement income exercise that may help you prepare.