Staying in tune with stock market valuation

With the debate about the valuation of the US stock market continuing to rage, one factor which is often overlooked is the importance of choosing the correct long-term average with which to compare its current level. When it comes to Shiller’s well-known cyclically-adjusted price/earnings ratio, the correct answer is the harmonic average, not the arithmetic average. Esoteric as this may sound, it actually makes quite a big difference when comes to gauging the extent of the market’s overvaluation.