Join Early Retirement Today
Thread Tools Search this Thread Display Modes
The "Gordon Formula"
Old 02-19-2004, 06:00 PM   #1
Thinks s/he gets paid by the post
charlie's Avatar
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
The "Gordon Formula"

Hi all,

If you are a Bogle/Bernstein fan like myself, you are
probably concerned about the long term forecast
for the "market". The Gordon formula says:

Return = Current Dividend + Dividend Growth
(assumes constant P/E ratio)

I believe that for a well diversified fund, you could
assume that earnings growth is a proxy for dividend
growth. With this in mind, I applied the formula to
several Vanguard funds:


Index 500 1.44 7.8 9.24
Total Stock Mkt 1.31 5.2 6.51
Value Index 2.30 5.0 7.30
Growth Index 0.48 11.3 11.78
Extended Mkt 0.81 5.1 5.91
Mid Cap Index 1.10 9.1 10.20
Small Cap Grth 0 12 0 12.00
Small Cap Index 0.94 6.5 7.44
Small Cao Value 1.90 3.3 5.20
Windsor II 1.93 9.3 11.23
Growth & Income .24 11.3 12.54

What do you guys make of this? I was surprised
that Index 500 looks better than the Total Stock
market. Also Windsor II looks better than both.

I will be 70 this spring and struggled for years
picking stocks, bonds, managed funds, etc. After
reading Bogle and Bernstein I became convinced
that Index investing was the answer. I switched
everything over recently to Target Retirement 2025
thinking this was the best compromise, for me. I
still believe this, but I feel myself wavering.



P.S. Please forgive the messed up appearance of
the table. I could not figure out how to fix it.

charlie is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: The "Gordon Formula"
Old 02-20-2004, 03:57 PM   #2
Full time employment: Posting here.
Join Date: Nov 2002
Posts: 768
Re: The "Gordon Formula"

My impression is that the formula has limitations, as it predicts a positive return for any possible valuation. If dividends on the S&P were to fall to .00001%, the formula would still predict a positive return based upon the dividend growth rate. IMO, it may not be reasonable to assume constant P/E multiples regardless of valuation.

Also, the growth rates should probably be based upon the longest available data to improve the odds of using a statistically valid sample size. Data on the S&P is available back to 1871, which gives a reasonable data base. Many of the others have such a short history that their results may not be representative of their long term behavior.

Michael is offline   Reply With Quote
Re: The "Gordon Formula"
Old 02-20-2004, 04:17 PM   #3
Posts: n/a
Re: The "Gordon Formula"


still believe this, but I feel myself wavering
If you are a Berstein fan, you have to remind yourself to set an asset allocation for yourself and never waiver. Despite what experts on this forum and others may recommend. If you waver, you will will lose!

I assume that you have read the 4 Pillars?
  Reply With Quote
Re: The "Gordon Formula"
Old 02-20-2004, 06:37 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,639
Re: The "Gordon Formula"

The 2025 is not too far from my Lifestrategy moderate as for initial asset mix. The point of these funds is that they rebalance themselves UNEMOTIONALLY. During the recent 2000-2003 unpleasantness my fund was down almost 16% at one point - I waviered all over the place - But didn't act - so with recent upswing - back ahead again - maybe 4%/yr last 5 years - not great but the auto-rebalancing did it's job.
unclemick is offline   Reply With Quote
Re: The "Gordon Formula"
Old 02-20-2004, 07:40 PM   #5
Thinks s/he gets paid by the post
charlie's Avatar
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
Re: The "Gordon Formula"

unclemick, cut-throat & mikeschoren,

Thanks for your responses, guys. I keep "4 Pillars..."
by my bed and read it whenever I start having 2nd


charlie is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Greenblatt's "magic formula" pms163 FIRE and Money 7 01-22-2006 08:34 PM

» Quick Links

All times are GMT -6. The time now is 06:01 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.