Stock Valuation: Why Cash Flow Matters More Than the CAPE Metric

The author critiques the Cyclically Adjusted Price-to-Earnings (CAPE) ratio popularized by Robert Shiller, arguing it has limited predictive power for stock market returns. Through analysis of correlation data and historical backtesting, the author demonstrates that trailing PE ratios and dividend yields are equally or more effective valuation indicators, suggesting investors should focus on cash flow fundamentals rather than relying on CAPE as a market timing tool.