“[The current level of the cyclically adjusted price-to-earnings (CAPE) ratio] would suggest reducing your holdings of [U.S.] stocks, especially for a long-term investor. We can’t time the market accurately, but we know that when it’s this high, over the long term, it usually doesn’t do great.”

– Robert Shiller

Yale University professor Robert Shiller is a rock star among economists.

Two editions of his best-seller Irrational Exuberance (2000 and 2006) predicted both the dot-com bust and the housing bubble. (The 2016 edition expanded coverage to the bond market bubble – a topic I’ve covered before.)

His undergraduate courses on investing are among the most popular at Yale.

Shiller picked up the Nobel Prize in economics in 2013.

Shiller’s name also defines one of the most cited ways to value the stock market: the “Shiller P/E,” also known as the “CAPE ratio.”

Sadly, if the Shiller P/E proves to be as accurate as Shiller’s other predictions, it spells bad news for investors in the U.S. stock market.

The U.S. Stock Market’s State of Play

The U.S. stock market has enjoyed a stunning run over the past decade.

Among the 47 global stock markets I monitor daily, the U.S. market – as measured by Vanguard Total Stock Market ETF (NYSE: VTI) – ranks first.

It also ranks within the top 10 for the past three- and five-year periods.

The bad news is that the prospects for the decade ahead are much less promising.

The Shiller P/E explains why…

It measures the current price of a market divided by the average of 10 years of earnings, adjusted for inflation.

Think of it as a long-term price-to-earnings (P/E) ratio.

With a ratio of 33.5, the U.S. stock market is almost twice as expensive as its historical average.

Through a global lens, the U.S. fares equally as poorly.

Germany’s StarCapital private equity firm uses the Shiller P/E to track 43 global stock market valuations.

Today, the U.S. stock market is the third most overvalued on the planet.

Only the stock markets of Ireland and Denmark are more expensive.

According to StarCapital , the cheapest market in the world is Greece – its Shiller P/E is negative 7.5.

Russia – the country investors love to hate – is next, with a Shiller P/E of 6.4.

The Czech Republic, Turkey and Poland round out the top five.

How Would Shiller Invest?

Now, I have no insight into Robert Shiller’s personal portfolio.

But the Shiller P/E does offer valuable insights into his thinking.

Today, I expect he is reducing – or at least not increasing – his holdings in U.S. stocks.

And he is likely investing in the cheapest foreign markets, as measured by the Shiller P/E.

With countries like Russia, Turkey and Poland in the mix, buying stocks on these overseas markets may seem impossible.

Luckily, there’s an ETF that offers a solution…

Each year, Cambria Global Value ETF (NYSE: GVAL) applies a Shiller P/E to 45 foreign markets across the world.

It then targets and invests in the 12 (or so) most attractive countries.

Currently, the top six country holdings are Austria, Brazil, Russia, Greece, Portugal and Poland.

As it turns out, Austria, Portugal and Poland were also among the world’s top-performing stock markets in 2017.

The ETF has also almost doubled the returns of the market cap-weighted Vanguard FTSE All-World ex-US ETF (NYSE: VEU) over the past two years.

I’ll leave you with two takeaways…

First, don’t dump U.S. stocks and hide in cash because the Shiller P/E stands at an eye-popping high (though this is very tempting).

Instead, be cautious, buy fewer U.S. stocks… and brace yourself for lower returns in the years to come.

Second, allocate some of your new investments to global stock markets through a strategy like that of Cambria Global Value ETF.

Yes, holding the world’s most hated and obscure stock markets may be uncomfortable.

But with Robert Shiller’s track record for identifying long-term trends, it’s not a strategy I’d bet against.