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Price/Earnings Ratio
![Price-Earning Ratios as a Predictor of Twenty-Year Returns](../../../../../../../../../figures.boundless-cdn.com/32353/full/f3i9sjmkrsuqtzsjd0oh.jpg)
Price-Earning Ratios as a Predictor of Twenty-Year Returns
The horizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Index as computed in Irrational Exuberance (inflation adjusted price divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later. Note that over the last century, as the P/E ratio has decreased, annualized returns have increased.
Source
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"Price-Earnings Ratio."
https://commons.wikimedia.org/wiki/File:Price-Earnings_Ratios_as_a_Predictor_of_Twenty-Year_Returns_(Shiller_Data).png
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