What we can learn from past stock market crashes
The stock market took another nerve-wracking ride on Thursday, with the Dow Jones Industrials dropping more than 1000 points. One explanation of this week's jitters is the idea that market...
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Paul Solman: Stock market got you spooked? Afraid of a Wall Street Armageddon? Well, putting today's market in historical perspective isn't exactly reassuring. But how about the explanation that stock prices were and still are historically out of whack? Stock prices of U.S. companies have recently reach their second highest level since 1888, according to Nobel laureate Robert Shiller, CAPE, or C-A-P-E, an acronym for cyclically adjusted price/earnings ratio. Since a share of stock is, in theory, a share of a company's profits, a P.E., or price/earnings ratio, means a high stock price relative to profits. Using the S&P 500 index, an average of 500 major companies, Shiller's CAPE has had three dramatic peaks, the Roaring '20s, the dot....
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Paul Solman: Stock market got you spooked? Afraid of a Wall Street Armageddon? Well, putting today's market in historical perspective isn't exactly reassuring. But how about the explanation that stock prices were and still are historically out of whack? Stock prices of U.S. companies have recently reach their second highest level since 1888, according to Nobel laureate Robert Shiller, CAPE, or C-A-P-E, an acronym for cyclically adjusted price/earnings ratio. Since a share of stock is, in theory, a share of a company's profits, a P.E., or price/earnings ratio, means a high stock price relative to profits. Using the S&P 500 index, an average of 500 major companies, Shiller's CAPE has had three dramatic peaks, the Roaring '20s, the dot....
