A simple illustration of how valuations can change over time
The cyclically adjusted P/E ratio (CAPE) of stock market is one of the most useful tools for investors. High CAPEs mean lower expected real return for the next 20 year on average. CAPE trend is also important for investors to monitor, not just level. In a secular bull market, the CAPE tends to trend higher over a period of around 20 years. In a secular bear market, where the CAPE is trending lower for about 15 years, even if profits are rising it is very difficult for any stock to deliver good returns because each dollar of profit is valued less each year.
The chart above came from the article at this web address. http://www.moneyobserver.com/our-analysis/chart-shows-now-good-time-to-be-value-investor