Indicator - future stock returns -3.3% per year.

[JBTX]

https://www.morningstar.com/news/mar...test-predictor

I don’t make big moves on clickbait, but nonetheless interesting and has some degree of plausibility. Basically the percent of stocks in indivuals portfolios is fairly strongly inversely correlated with future returns. This is generally consistent with CAPE10 longer term projections, Buffett indicator and in the ballpark of Bogle’s projections and similar to Jeremy Grantham.

Of course they could all be wrong, but it’s probably worth being prepared for if this is right to any material degree.

[Dtail]

Not a fan of Cape 10. The correlation when it was developed worked for past sequences, but not really since then with the exception of 2009.
If one invested in the stock market according to Cape 10 since development, what would those returns look like?

[JBTX]

Quote:

Originally Posted by Dtail Not a fan of Cape 10. The correlation when it was developed worked for past sequences, but not really since then with the exception of 2009. If one invested in the stock market according to Cape 10 since development, what would those returns look like?

Cape 10 is not a very good mechanism to use for market timing - getting in or out. It is a pretty good indicator, directionally, or whether returns will be above or below averages 10 years out.

[Dtail]

Quote:

Originally Posted by JBTX Cape 10 is not a very good mechanism to use for market timing - getting in or out. It is a pretty good indicator, directionally, or whether returns will be above or below averages 10 years out.

Cape 10 was over 21 in 2012, so the next 10 years should have had below average returns. The results say otherwise.

[RobbieB]

Hehe, yeah, I bought a yacht with my "below average" returns.

[JBTX]

Quote:

Originally Posted by Dtail Cape 10 was over 21 in 2012, so the next 10 years should have had below average returns. The results say otherwise.

Awesome. You found one data point. That changes everything.

https://www.evidenceinvestor.com/the...-not-abuse-it/


https://www.evidenceinvestor.com/wp-...er-CAPE-10.png


https://i0.wp.com/earlyretirementnow...45%2C705&ssl=1

[NW-Bound]

Quote:

Originally Posted by JBTX Cape 10 is not a very good mechanism to use for market timing - getting in or out. It is a pretty good indicator, directionally, or whether returns will be above or below averages 10 years out.

The late Bogle warned us to lower our expectation for future stock returns due to high P/E.

He would not and could not predict when P/E reversion would happen, only that it could anytime.

[Koolau]

Whatever the stock market does in the next few years will confirm SOME one's pet theory. Then they'll have their own click-bait site. YMMV

[FLSUnFIRE]

I am an efficient market guy (especially over the long term) and into fundamental analysis if inclined to try to find the inefficiencies. I think a lot of people forget when talking about "the market" that what they are talking about is just a large collection (somehow curated, usually by an index) of financial instruments (whether ownership rights or debt holders) related to private companies.



Technical analysis never made sense to me (through my efficient market lens) as it is not causal at all (and doesn't usually claim to be) and is always trying to predict the future based of perceived patterns in the past (one step up from astrology imo). Particularly with technical analysis I think the market is VERY efficient as any prior patterns can be easily identified and automated (same as it is really hard to find arbitrage opportunities at the individual level*). It may not be completely impossible to notice a pattern that has not been exploited but certainly anything published will be used by someone thus impacting the future usefulness of exploiting that perceived pattern either at the market level or individual security level.


I do think that there are opportunities to exploit fundamental analysis of individual companies and possibly niche sectors that are mis-valued (more likely due to fads or social trends -sin stocks and perhaps some socially conscious investing distortions that overvalue based off of non-financials). However, there are a lot of really smart people and computers seeking and exploiting these and can do so much better than us. We, as individuals, are very unlikely to have the time and consistent luck in finding the nuggets in a competitive marketplace to be useful to exploit. -But it is fun to look if you like to nerd out and play doing analysis.



As long as I have an overall optimistic outlook on the future, I expect the market will trend upwards based off of technical and social advancements that will lift, on average, all those companies I invest in through mutual funds. If I'm wrong, that's what guns, ammo, food, and survival skills are for (but if it all hits the fan they won't help you for long either!).


* without some external forces at play such as government manipulation, or 0% teaser interest rates (expected to be offset by other income flows by the lender) allowing you to borrow for less than market prices.

[frayne]

See sig line.

[Koolau]

Quote:

Originally Posted by frayne See sig line.

Right on!

[Quattro73]

I don’t understand any predictions of real returns when no one has any clue what inflation will be.

[OldShooter]

The nice thing about predictions is that there is always one that confirms one's bias.

An interesting thing is that in general the prognosticators know that their prediction ability is poor. If it was good, they wouldn't be telling everyone -- they would be out making money. So either they have tried and failed to make money from their predictions or they are afraid to try.

A problem is that regardless of what happens, someone is always right. So then we must endure months or years of drivel from someone who was the lucky monkey this time around.

[Dtail]

Quote:

Originally Posted by JBTX Awesome. You found one data point. That changes everything. https://www.evidenceinvestor.com/the...-not-abuse-it/ https://www.evidenceinvestor.com/wp-...er-CAPE-10.png https://i0.wp.com/earlyretirementnow...45%2C705&ssl=1

See posts 8,10,11,12,13.
Whew you set me straight now on Cape 10. Your turn.......