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Old 11-20-2017, 11:55 PM   #21
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Originally Posted by daylatedollarshort View Post
He was predicting nominal to zero real returns in 2015 for the coming decade:

“When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero,” Bogle explained."

https://www.benzinga.com/analyst-rat...ects-nominal-t


Thanks. I was wondering about that. Just proves that even really smart and well informed people have no idea how the market will perform.
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Old 11-20-2017, 11:58 PM   #22
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Originally Posted by RenoJay View Post
Yes, thanks. I made my post from a phone and didn't have ready access to the article. In any case, Siegel is almost always very bullish so I was shocked at his viewpoint.


As long as there are these dire predictions, I'm not too worried. The time to worry is when everyone thinks you can't lose and it's time to buy.
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Old 11-21-2017, 12:18 AM   #23
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Thanks. I was wondering about that. Just proves that even really smart and well informed people have no idea how the market will perform.
Most of these predictions remind me of a joke on The Oroville. A human crew member said "I'm just talking out of my a** here" and an alien crew member who took her literally said "then please enunciate clearly."

The link below has 10 year Treasury Rates vs Historical Economic Forecasts. The forecasters always thought rates were going up, when nominal and real rates in fact have been declining for decades. Not only were their forecasts completely wrong, they failed to take into account the big picture trend, which seems pretty basic when graphed:

https://obamawhitehouse.archives.gov...interest-rates

"The decline has come largely as a surprise. Financial markets and professional forecasters alike consistently failed to predict the secular shift, focusing too much on cyclical factors."
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Old 11-21-2017, 07:26 AM   #24
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Most of these predictions remind me of a joke on The Oroville.


The Orville, right?

Highly recommended for some sci-fi not so serious minded people. https://www.fox.com/the-orville/
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Old 11-21-2017, 07:27 AM   #25
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Well, almost all the SP growth the last year is explained by a falling dollar and foreign markets doing well. 50% of SP revenue is foreign, so although the US is flat, they have done well.

Consequently, if the US continues to stagnate and the rest of the world kicks economic butt, The SP will do very well while the GDP stagnates.
Whatever factors that propel the S&P to 20% rise in the last 12 months (and there's never a concensus on what those factors are), do we expect those to continue ad infinitum to drive the S&P 20%/year for decades to come?

I am reminded of that time in late 1999, when I got past the 7-figure mark and was well into it actually, I sat down to figure out when I would reach the multimillionaire status with that growth rate. Heh heh heh...

Some cataclysmic events happened to derail that projection, but even without them, one could not expect the tech boom to "boom" again and again. The Internet is great, but it could be invented only once. Need another major technical advance, and it does not come every year.

So, it took quite a few more years before I reached that mark, particularly as I lost 44% from the top in 2000/3/24 to 2002/10/09 (the NASDAQ lost 78% in the same period), and had to regain the millionaire status first. Heh heh heh...

PS. I kept a diary where I log the total value of my stash to the dollar everyday. It's so I can look back to see where I was, and try to remember what I was thinking at that point.
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Old 11-21-2017, 07:28 AM   #26
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I like the simple math that Jack uses to estimate returns. But, I've never gotten my head around why Bogle uses Dividend Yield+Earnings Growth in his estimate. Dividends are a component of earnings that a company may or may not pay out. Shouldn't it be Earnings Yield+Earnings Growth?
Reasoning: dividends is what you get in hand right now, retained earnings are invested to maintain and grow future earnings.

If you take 100% earnings + earnings growth you have a risk of double counting.
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Old 11-21-2017, 08:52 AM   #27
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Whatever factors that propel the S&P to 20% rise in the last 12 months (and there's never a concensus on what those factors are), do we expect those to continue ad infinitum to drive the S&P 20%/year for decades to come?
Isn't that a straw man argument? With an average of 10%, who in their right mind would be predicting 20%/year for decades? Who has said that in this thread? Heck, who's been stupid enough to say that in Punditland? I haven't heard it.
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Old 11-21-2017, 08:58 AM   #28
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Whatever factors that propel the S&P to 20% rise in the last 12 months (and there's never a concensus on what those factors are), do we expect those to continue ad infinitum to drive the S&P 20%/year for decades to come?

...
I would love to have my portfolio go up 20% per year. But agree, it won't happen. Dam, it's so sweet to see those quarter percent gains every day with all those green quotes.

However, we could have a blow off phase where the market (picture a slope increase on a semilog graph) goes to extremes for several months. My preference is for a consolidation phase where the market is down/up/down/up and basically flat.

Doesn't look like a US or internationals recession is in the cards at present although apparently the China yield curve has inverted.
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Old 11-21-2017, 09:00 AM   #29
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Isn't that a straw man argument? With an average of 10%, who in their right mind would be predicting 20%/year for decades? Who has said that in this thread? Heck, who's been stupid enough to say that in Punditland? I haven't heard it.
In the 1990's there were people who thought 20%/year was not outlandish.
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Old 11-21-2017, 09:35 AM   #30
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Whatever factors that propel the S&P to 20% rise in the last 12 months (and there's never a concensus on what those factors are), do we expect those to continue ad infinitum to drive the S&P 20%/year for decades to come?

I am reminded of that time in late 1999, when I got past the 7-figure mark and was well into it actually, I sat down to figure out when I would reach the multimillionaire status with that growth rate. Heh heh heh...

Some cataclysmic events happened to derail that projection, but even without them, one could not expect the tech boom to "boom" again and again. The Internet is great, but it could be invented only once. Need another major technical advance, and it does not come every year.

So, it took quite a few more years before I reached that mark, particularly as I lost 44% from the top in 2000/3/24 to 2002/10/09 (the NASDAQ lost 78% in the same period), and had to regain the millionaire status first. Heh heh heh...

PS. I kept a diary where I log the total value of my stash to the dollar everyday. It's so I can look back to see where I was, and try to remember what I was thinking at that point.


Just pointing out that US gdp is less and less consequential to returns going forward. If china and india does 7% for the next 20 years(totally possible), SP will likely do great and just as likely chi/ind will dominate the US in myriad ways as we fall from our economic throne.
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Old 11-21-2017, 09:38 AM   #31
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I ignore the numbers but almost every “expert” is predicting lower than average results, something lower, how much lower who knows.
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Old 11-21-2017, 09:46 AM   #32
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From 1950 to 2010, the S&P returned 7% in real terms, meaning after inflation. I can live very well with that. That number however included the outstanding return of the 1980-2000 period, which benefited from the P/E expansion which can happen only once.

Looking ahead, it is going to be lower than that 7% in real terms. A Web site quotes Buffett as saying stocks will likely grow at 5% plus they pay 2% dividend. So, it is around 7%, but that's nominal.

Take Buffett's number, then account for inflation, we are back to roughly what Bogle said again.

PS. I can live very well with 7% return in nominal terms. No problemo! That's more money than what I am spending now.
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Old 11-21-2017, 09:58 AM   #33
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At current valuations and low interest rates I think it makes sense to have a conservative forecast (it you're going to bother to have one), and Bogle's approach seems reasonable.

1.5% to 2% real return on a 50/50 portfolio is good enough for portfolio survival, so it's good enough for me!

I'm not going to expect anything better. I sure hope for nothing worse - don't want 0% real or negative!!!
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Old 11-21-2017, 01:45 PM   #34
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I like that he calls it Expectations and not a Forecast.
Not sure how helpful this can be for us as most everyone here has expectations, but plans to (close to) worst case scenario.

Or as Mel Brooke's would say:

https://youtu.be/rt1cA0jqamk
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Old 11-21-2017, 02:43 PM   #35
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2017 interview with Morningstar, an annual discussion of his expectations: Bogle's 'Reasonable Expectations' for Market Returns

He thinks what is reasonable to expect from now is:
  • 4% nominal for equities which he computes from 4% growth, 2% divs, -2% valuations.
  • 3% nominal for 50% 10 year Treasury + 50% corporate bond index.
  • 1.5% for inflation — not clear if that's today's inflation or expected inflation.
So you can plug these into your AA and model your nominal and real inflation.

50/50 would be 3.5% nominal and 2% real. I would be more inclined to use 2% for inflation, so 1.5% real.


My target AA happens to be 50/50. Using 3.5% nominal return and 2% inflation, my WR would go up to 3.5% in 10 years if I chose to keep my spending power constant. I will be ~54 in 10 years and 3.5% still seems pretty safe for that age.
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Old 11-21-2017, 04:13 PM   #36
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I forgot to point out the following important detail in my earlier post when I compare Buffett's thinking to Bogle's.

Bogle was still worrying about P/E contraction. The S&P P/E is awfully high right now, and above 25. If it reverts back to the normal 20, that knocks off 20%, and Bogle pointed out that it would be 2% a year over the next decade.

Buffett did not mention the high P/E effect above. Some people argue that high P/E is here to stay. On the other hand, Shiller has been bothered by that high P/E for a long time.

So, what will play out? If P/E contracts, I am still OK. If P/E stays high, that will certainly not bother me. But I do not make plan for the case it goes even higher.

PS. Take that back. If P/E goes even higher, I will be selling a lot of stocks. Have seen that before in 2000. Can't fool me again.
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Old 11-21-2017, 05:16 PM   #37
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I looked up the PE from the Wall St Journal here: P/Es & Yields on Major Indexes - Markets Data Center - WSJ.com

Current SP500 PE = 24.4 but note that last year it was 24.2 ! So even with an over 20% gain, the PE has not expanded much. Also the dividend yield is 1.93% and this is pretty good compared to the 10 year Treasury at 2.36%.

Have to admit I am biased. I don't want the party to end. Did sell some equity today to keep the AA at the max equity limit of 60%.
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Old 11-21-2017, 06:02 PM   #38
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Darn!

I will try to find that site where I saw that P/E greater than 25, but I definitely remember looking at the date to make sure it was recent, and it was in Oct 2017. Apparently, the recent earning report boosted the current earning, and drove down that P/E. Hurrah!

I will not sell some stocks tomorrow after all.

PS. 70.7% stock AA as I write this. And that is after many covered call options I sold expired last Friday deeply in the money, causing me to have to let go of mucho of my hot semiconductor stocks (a couple hundred $K worth). It's hard to buy them back now, as they have climbed even higher.

I usually run 70-80% stock AA. When I feel bearish, I go down to 50-60%.
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Old 11-21-2017, 06:17 PM   #39
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At current spend rate my stash would be good for 50 years at a real 0% return, Being that I'm 67 now any plus over that it's party time!
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Old 11-21-2017, 06:22 PM   #40
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OK, before celebrating the increase in earnings, let's look at some recent numbers.

If you bought VFINX, Vanguard's S&P index fund, 4 years ago, a $10K then would be worth around $14k now. That's a 40% gain.

The P/E of the S&P was then 18.45 (Dec 31, 2013). The ratio of P/E between the two dates, 24.4/18.45, is 1.32x.

Now, that tells us that of the 40% stock gain the last 4 years, much of it was due to P/E expansion. In other words, the stock gain is not commensurate with the earning increase. People are just bidding up stocks, in anticipation of something that has not happened yet. When they are disappointed, it will be "Sell, sell, sell".

I will not pop that champagne yet.
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