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Old 11-21-2017, 10:14 PM   #41
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A couple of thoughts...
There seems to be a lot of reading material nowadays on how expensive the US market is and to expect muted gains over the next decade. There's also suggestions that where the gains will be are in the emerging markets where valuations are still reasonable even with the run-up this year.

We appear to be on the cusp of the next wave in technology over the next 5-10 years with the Internet of Things, fast mobile networks, cloud computing, and artificial intelligence. The hope would be that companies can take advantage of the information and efficiencies that this leap in technology offers to grow earnings.
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Old 11-21-2017, 11:42 PM   #42
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This site has daily numbers on PE and other measures.
S&P 500 PE Ratio
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Old 11-22-2017, 01:02 AM   #43
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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.
I read a blog post by an economist who said basically the same thing. He believes we're entering an era of long, slow expansion which will keep propelling stocks slowly upward.

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The Internet is great, but it could be invented only once. Need another major technical advance, and it does not come every year.
It kind of does though. Internet shopping, cloud computing to name a couple. I think the tech industry has barely cracked what's possible with the Internet.
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Old 11-22-2017, 03:02 AM   #44
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Obviously "4% annualized (over the next 10 years)" is intended to indicate the center of a widely dispersed probability distribution.

So "4% annualized (over the next 10 years)" really means something like "there is about 2/3 chance that the annualized growth over the next 10 years will be between -2% and +10%".
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Old 11-22-2017, 03:02 AM   #45
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The Orville, right?

Highly recommended for some sci-fi not so serious minded people. https://www.fox.com/the-orville/
[/I]
Right, my mistake, we have a city near us called Oroville, but the show is called Orville.
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Old 11-22-2017, 05:04 AM   #46
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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.
Maybe during the past year, but prior rises the US dollar was strengthening and we saw runs up in SP500, etc. I think the multi-year run can be explained by QE-induced asset inflation, starting with the huge 30% S&P 500 gain in 2013. Now we're going through reverse QE. At some point that's got to create a big drag on asset appreciation.
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Old 11-22-2017, 07:21 AM   #47
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Anyone who has been here a while knows that I am no Boglehead, and do not care to frequent their Web site.

However, I do pay attention to what Mr. Bogle has to say. I think he is talking about the longer term investment return, not what is going to happen next month or next year, or even the year after next. I think he and some other pundits are using the macroeconomic aspects to see the average market return for the next decade or two.

Does anyone here expect the S&P to keep rising 20%/yr like it has in the past 12 months? When the GDP grows only 3.5%/yr? You must also believe in the story of Jack and the beanstalk.
Agree. It is mainly a mean reversion argument. Historically, current PE levels imply modest returns over the next 5-10 years.

I think we are well advised to keep expectations low.

However, that does not suggest we will not get another 10 pct up from here.
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Old 11-22-2017, 07:37 AM   #48
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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.
The big driver of PE expansion was a decline in interest rates from 1980 into the 2000's. You are correct, can't happen from here.

Similarly, if you look at the rising rate environment that proceeded it, stocks returned virtually nothing for 15 plus years if I recall.

Lesson is interest rate direction is perhaps the most important single driver of equity returns over time.
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Old 11-22-2017, 09:08 AM   #49
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If we think the technological advances will drive up the company earnings, then let's look at what the effects have been in the last 20 years.

From Jan 1, 1997 to Jan 1, 2017, the S&P price has gone up 2.97x (5.6%/yr, nominal). However, that is before inflation. If we adjust for inflation, the S&P has gone up 1.95x (3.4%/yr, real). How have the aggregate earnings been doing?

The site multipl.com has lots of good data. I saw that in inflation-adjusted terms, the S&P earnings have gone up a factor of 1.60x. Note that it is less than the price appreciation ratio of 1.95x above (also inflation-adjusted). There's some P/E expansion here again, as indeed the P/E in Jan 1997 was 19.5, and Jan 2017 was 23.6.

But let's get back to the earning increase. The factor of 1.60x over a period of 20 years works out to a measly 2.38%/year in real terms. During that time, the inflation ran an average of 2.15%, and the earnings increase was 4.53% in nominal terms.

Even though the earnings increase was not that great in real terms (2.38%/yr), we had wonderful advances. In 1997, a 42" flat-screen TV was $20K, as I recall seeing one on display at Sam's Club. Now it's $200. In 1997, most people were still accessing the Internet via a dial-up modem, now they are streaming video with broadband access. In 1997, I was working with a company helping to plan for the introduction of the first digital cell phone to the US. Now, everybody has a smartphone with Internet access.

The technology advances certainly improve our quality of life by letting these companies be more productive and provide better products and services. However, the competitive nature of business does not let them make as much money as we think. We cannot have good and affordable products, while having our stocks also going through the roof.
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Old 11-22-2017, 01:23 PM   #50
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+1
As I have mentioned before, I think we often expect too much from our heroes. Jack Bogle has done a lot for us all by driving down mutual fund fees, and promoting indexed investing, but why we would expect him to be able to predict future returns is something else again. I have a lot of admiration for Mr. Bogle, but I would not be looking to him to be oracle of the future.
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Old 11-23-2017, 10:22 AM   #51
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He explicitly says he's not predicting, he is saying what a reasonable assumption would look like, and what it implies about your assumptions.

Most of us need at least some scenario planning, and what parameters to use for reasonable scenarios.

He knows prediction is impossible, although invest we must.

e.g. assuming 10% nominal returns in a normal inflation environment has implications on earnings growth and multiples that haven't been shown at any time in the past 100 years. You want to use that, fine says Bogle, but just be aware what you are saying: that the future will be much better than the past. That's all.
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Old 11-23-2017, 10:51 AM   #52
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Just now, I saw an article on the Web about how much money people would have if they invested in Netflix, Amazon, Apple, etc... 10 years ago. I guess that would cause a lot of people to kick themselves for missing out.

When people start to have high expectations, watch out. It does not feel like 1999-early 2000 yet, but it is getting close. When people poo-poo reasonable expectations, I should think about positioning myself closer to the exit.
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Old 11-23-2017, 11:02 AM   #53
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Just now, I saw an article on the Web about how much money people would have if they invested in Netflix, Amazon, Apple, etc... 10 years ago. I guess that would cause a lot of people to kick themselves for missing out.

When people start to have high expectations, watch out. It does not feel like 1999-early 2000 yet, but it is getting close. When people poo-poo reasonable expectations, I should think about positioning myself closer to the exit.
The only decline that l can find that might be relevant now would be one that occurred in 1962. Seems that it came out of nowhere. Other declines we're more predictable. The 1987 decline was avoidable because bonds we're a very good deal then.
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Old 11-23-2017, 11:10 AM   #54
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Just now, I saw an article on the Web about how much money people would have if they invested in Netflix, Amazon, Apple, etc... 10 years ago. I guess that would cause a lot of people to kick themselves for missing out. ..
I think that kind of article is worse than useless, because it implies that somehow it was possible 10 years ago to pick the eventual winners.

I'm sure I could find a similar article from a few years ago that was chortling about how much money people had made on AOL, Cisco, and JDS Uniphase.

Everything is clear in the rear view mirror. As Will Rogers said: "If it doesn't go up, don't buy it."
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Old 11-23-2017, 11:34 AM   #55
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The only decline that l can find that might be relevant now would be one that occurred in 1962. Seems that it came out of nowhere. Other declines we're more predictable. The 1987 decline was avoidable because bonds we're a very good deal then.
Having lived through the 2000 and 2008 meltdowns, I can only relate personally to these two. Very predictable, but in hindsight for me.

In 2000, dot-coms were ridiculously priced. I did not own a single one of them, but my beloved tech stocks with high but reasonable P/E were hurt badly too although not to same extent. They sold a lot of equipment to the dot-coms, and their business dried up.

In 2008, not owning a single home builder or bank, I though I would be OK. Nope! The problem was systemic and affected the entire world.

Anyway, we are not there yet, but the way it is going, maybe another 6 months, another year? Heh heh heh... Market timing is exciting (and very tough).

Sign someone who's at 70% stock AA.
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Old 11-23-2017, 02:32 PM   #56
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Having lived through the 2000 and 2008 meltdowns, I can only relate personally to these two. Very predictable, but in hindsight for me.

In 2000, dot-coms were ridiculously priced. I did not own a single one of them, but my beloved tech stocks with high but reasonable P/E were hurt badly too although not to same extent. They sold a lot of equipment to the dot-coms, and their business dried up.

In 2008, not owning a single home builder or bank, I though I would be OK. Nope! The problem was systemic and affected the entire world.

Anyway, we are not there yet, but the way it is going, maybe another 6 months, another year? Heh heh heh... Market timing is exciting (and very tough).

Sign someone who's at 70% stock AA.
Both were predictable declines. This is something I only got into quantifying in 2009 so too late to use.

Both the 2000 and 2008 declines involved yield curve inversions, not just flatish yield curves. In both the PE10 was high, nose bleed high in 2000. In both the unemployment index ticked upwards. And in both we saw a slow rolloff period in the SP500. None of this is currently happening.
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Old 11-23-2017, 02:44 PM   #57
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Both were predictable declines.
You can call tops and bottoms?
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Old 11-23-2017, 03:05 PM   #58
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You can call tops and bottoms?
No, did you carefully read what I posted? What I'm saying is that there is available public data that has correlated well with some (not all) market declines. Look at the data and decide if you want to act on it.

I should not have used the word "predictable". In using such data one should be prepared to be wrong or have to endure some further upward market moves. Getting an exact high is probably just luck.

Caveat: not all market declines are covered by such data extremes. An example is the 1962 market decline.
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Old 11-23-2017, 04:22 PM   #59
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No, did you carefully read what I posted? ...
Well, I assumed that "Both were predictable declines." meant that they were predictable by you.

Agreed, however, there are patterns that, when backtested, correlate with past market events.
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Old 11-23-2017, 06:53 PM   #60
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Stock market does not repeat, but like history it does rhyme.

I am trying hard to discern the cadence here, and been looking for a déjà vu syndrome.
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