CAPE Ratio: Combining CAPE With Greenblatt’s Magic Formula

Value investing pioneer Benjamin Graham argued in favor of the cyclically adjusted price-to-earnings ratio as a good way of judging a firm’s actual earning power, and current value investing guru Joel Greenblatt recommends following the Magic Formula, which sounds pretty silly but has beaten the market for the last two decades. So it’s only natural that CAPE Ratio would ask the question – what happens if you try to use both? For those who don’t know, CAPE looks at stock price divided by a company’s average earnings over ten years, adjusted for inflation. The idea is to smooth out short…