Listen to Episode 463
On this week's show I explain the CAPE measurement and how it could help to identify undervalued stock markets. I then discuss the changes being applied to overdraft charges for Lloyds Banking Group customers and the steps they can take. Finally, Andy reveals the key car insurance questions you need to get right.
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Podcast Ep 463 Summary
Cheapest stock markets
The first segment covers investment, focusing on stock market valuations using the CAPE (Cyclically Adjusted Price-to-Earnings) ratio, a metric popularised by Nobel Prize-winning economist Robert Shiller. Damien explains how CAPE measures the price of a share relative to its earnings over the past ten years. Higher than average CAPE values indicate more expensive markets, while lower values suggest better value. The US stock market, for example, has a long-term average CAPE of 16.5 but currently sits at 34, indicating it is overvalued. Similarly, Indian equities have a high CAPE value of 35, suggesting overvaluation. In contrast, Japanese equities and certain emerging markets like China offer better value. Damien also highlights the importance of understanding that while CAPE can provide insights, it is not a crystal ball for predicting market movements.
Overdraft charge increases
The second segment discusses recent changes to overdraft fees by Lloyds Banking Group, including Bank of Scotland and Halifax meaning some customers will have an APR of 49.9%. The segment also explains why listeners need to review their overdraft terms and consider alternatives like moving money from savings or using 0% money transfer credit cards. Damien also recommends reaching out to free debt advice services like StepChange if you are struggling with debt.
Car insurance questions you must get right
In the final segment, Andy provides tips on car insurance. He notes that the average annual car insurance premium has risen to nearly £650. Key points include accurately reporting mileage, choosing the correct insurance class (such as social, domestic, and pleasure or business use), and ensuring accurate no claims bonus details. Incorrect information can invalidate insurance. He also warns against the illegal practice of "fronting," where someone other than the main driver is listed to reduce premiums. Andy concludes with reminders about declaring vehicle modifications and being honest about security features to avoid issues during claims.
Podcast quiz questions
Here are five multiple-choice questions to test yourself after listening to this week's episode.
- Which Nobel Prize-winning economist created the CAPE valuation measurement?
- A) Robert Shiller
- B) Paul Krugman
- C) Joseph Stiglitz
- D) Milton Friedman
- What does a higher than historical average CAPE value indicate about a stock market?
- A) It is cheap
- B) It is undervalued
- C) It is expensive
- D) It is a good investment
- The term "value trap" describes a stock that...
- A) is undervalued but you overlook it
- B) looks like a great deal but really isn't
- C) is overvalued
- D) is performing well
- What new overdraft rate could some customers of Lloyds, Halifax, and Bank of Scotland face?
- A) 19.9%
- B) 27.5%
- C) 39.9%
- D) 49.9%
- What is the average annual car insurance premium?
- A) £500
- B) £650
- C) £750
- D) £850
Answers:
- A - Robert Shiller
- C - It is expensive
- B - looks like a great deal but really isn't
- D - 49.9%
- B - £650
Resources:
Links referred to in the podcast:
