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Equity returns in the coming decade
Old 03-18-2011, 06:52 PM   #1
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Equity returns in the coming decade

A short but interesting paper published by the Center for Retirement Research at Boston College: Equity Returns in the Coming Decade - Center for Retirement Research at Boston College

From the conclusion:


Stocks currently are priced near 15 times earnings, offering stockholders a potential real return of 6.5 percent provided that corporations can maintain their earnings and price-earnings ratios do not drop in the future. Over the coming decade, if earnings continue to recover as they have during past business cycles, stocks are likely to pay returns that compare favorably to their historical averages.
Nothwithstanding the "provided that" and "f" qualifications, the conclusion that 6.5% real returns could reasonably be expected over the next decade is encouraging.

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Old 03-18-2011, 07:29 PM   #2
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Check out the P/E chart used by Hussman and his commentary for an alternative view. The charts look similar except for the most recent information. I don't know which is correct. Maybe they both are. I don't think we have seen the bottom for this bear market (Hussman correct), after that stocks will show a good return (Boston College correct).

Hussman Funds - Weekly Market Comment: Rich Valuations and Poor Market Returns - February 14, 2011

Last week, the S&P 500 Index ascended to a Shiller P/E in excess of 24 (this "cyclically-adjusted P/E" or CAPE represents the ratio of the S&P 500 to 10-year average earnings, adjusted for inflation). Prior to the mid-1990's market bubble, a multiple in excess of 24 for the CAPE was briefly seen only once, between August and early-October 1929. Of course, we observed richer multiples at the heights of the late-1990's bubble, when investors got ahead of themselves in response to the introduction of transformative technologies such as the internet. After a market slide of more than 50%, investors again pushed the Shiller multiple beyond 24 during the housing bubble and cash-out financing free-for-all that ended in the recent mortgage collapse.

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Old 03-18-2011, 07:30 PM   #3
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For much of the last 60 years, dividends have ac-counted for most of the real return on stocks. From 1951 to 1994, the average annual dividend yield of 4.6 percent represented just over one-half of the average real return on stocks
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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Old 03-18-2011, 08:08 PM   #4
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Originally Posted by dex View Post
I don't think we have seen the bottom for this bear market (Hussman correct), ....
What is your definition of a bear market? Is it when stocks are up year-to-date as they are today?
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