Peter Bernstein on long term returns FT Feb 26

[MichaelB]

On recent long term equity returns

The cold statistics have hardly been encouraging for the traditional view. On a total return basis, the Ibbotson data show that the S&P 500 has underperformed long-term Treasury bonds for the last five-year, 10-year, and 25-year periods, and by substantial amounts.

Compared with prior recessions, etc

There is an even deeper reason to reject the long run as a guide to future investment policy. The long-run results we can discern in the data of stock market history are not a random set of numbers: each event was the result of a preceding event rather than an independent observation. This is a statement of the highest importance. Any starting conditions we select in the historical data cannot replicate the starting conditions at any other moment because the preceding events in the two cases are never identical. There is no predestined rate of return. There is only an expected return that may not be realised.

What will happen going forward

We can neither answer those questions nor can we claim they are a complete list of the possibilities. The unknown today seems more than usually unknown. Then my whole point remains the same. The long run is an impenetrable mystery. It always has been.

FT.com / Markets / Insight - Insight: The flight of the long run

 

[ziggy29]

That was an awful lot of words to translate to "I don't know"...

 

[haha]

That was an awful lot of words to translate to "I don't know"...

That is not exactly what he is saying. He is saying, "It can't be known, and this is why..."

Ha

 

[REWahoo]

Ha, either interpretation lands you in exactly the same place...

 

[MichaelB]

Of course, he could also be saying ... just because equity prices are low doesn't mean they are any more likely to rise substantially over the next decade or two...

 

[REWahoo]

Of course, he could also be saying ... just because equity prices are low doesn't mean they are any more likely to rise substantially over the next decade or two...

...or any less.

 

[Leonidas]

I guess I'm stuck flipping this damn quarter for a while longer, huh?

 

[ziggy29]

Of course, he could also be saying ... just because equity prices are low doesn't mean they are any more likely to rise substantially over the next decade or two...

Or that stocks will either rise or fall in the next few years, unless they flatline.

 

[HFWR]

I guess I'm stuck flipping this damn quarter for a while longer, huh?

I wouldn't toss it too high; someone might grab it in midair...

 

[haha]

I think this article is mostly bear market blues.

Ha

 

[MichaelB]

Actually, compared to his interviews and the stuff he's written over the past 4 years, this was absolutely bullish. Well, almost. But still, his tone was very downbeat 'til now - almost scary. Here he seems to be saying - hey, stocks can go up or down, and don't take anything for granted.

This man clearly is a consultant.

 

[unclemick]

Sooo - he doesn't want to admit - numbers are meaningless cause:

He's back! Paul Volcker that is. First old Reagan now Obama.

Thus - it's crystal clear we should be buying stocks hand over fist for the next 25 years.

Right? .

First the long bond/aka inflation and now stocks.

heh heh heh - Between our own Ziggy and Volcher we got this thing in the bag. . Of course non partisan wise you could just Pssst Wellesley and not take sides.

 

[Gone4Good]

The long-run results we can discern in the data of stock market history are not a random set of numbers: each event was the result of a preceding event rather than an independent observation.

On a total return basis, the Ibbotson data show that the S&P 500 has underperformed long-term Treasury bonds for the last five-year, 10-year, and 25-year periods, and by substantial amounts.

Well we know that the starting period for long Treasury yields (3.7%) is well below where it was 5 years ago (5.4%) and 10 years ago (5.6%) and 25 years ago (11.2%). And we also know that the S&P 500 P/E-10 (12.8x) is well below where it was 5 years ago (27.7x) and 10 years ago (40.4x) but not 25 years ago (10.5x).

Given this data set I'd say the chances are very good that stocks outperform long treasuries over the next 25 years.

 

[Gone4Good]

Said another way, in each of those periods (5, 10, 25-yr) the yield on 30-yr Treasuries was almost 200bp higher than the earnings yield on stocks. Now the earnings yield on stocks is more than 400bp higher than treasuries.

 

[BunsGettingFirm]

That was an awful lot of words to translate to "I don't know"...

That's why we are computer geeks, and they are "quoted experts." Lesson: Even when you don't know, spew some hot air.

 

[Ed_The_Gypsy]

It's time to PANIC!!!!

you first.

 

[Bikerdude]

Long Run

"In the long run we're all dead".

John Maynard Keynes

You can take that to the Bank!.....uh...bad choice of words.

 

[Architect]

According to Haver Analytics (I believe, don't have the research in front of me), between 1982 to 2000 if you had bought 30 year zeros, and simply sold them and reinvested back into zeros at the end of the year, you would have beat the S&P by a factor of 4 (4X). Pretty good results during the biggest stock bull market, and of course it's due to the unusually high interest rates in 1982. Last year they outperformed again, +30%ish compared to -45%ish.

Hoisington investment has a newsletter on their site which has much more about the performance of long treasuries versus stocks, during this 30 year period at least.