07-05-2006, 7:50 AM | Post #178844 |
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John Walter Russell and I today published The Stock-Return Predictor. This calculator employs regression analysis on historical stock-return data going back to 1870. |
Robert Shiller, John Bogle, Warren Buffett, William Bernstein and other stock investing experts have often warned investors that it is not reasonable to expect the sorts of returns that fueled the bull market of the 1980s and 1990s now that valuations have reached such high levels. Until publication of the calculator, though, stock investors have not had a means of quantifying the valuation effect and of thereby putting advice to be wary of the effect of valuation changes to significant practical use.
The historical stock-return data shows the most-likely 30-year real return for purchases of the S&P index made today to be 5.3 percent (with a range of possibilities stretching from 3.4 percent to 7.4 percent). The outlook is considerably darker for the more immediate future, however. The calculator reports a most-likely 10-year return of 1.3 percent (with a range of possibilities stretching from a negative 4.7 percent to a positive 7.3 percent). For 20 years, the most likely return is 2.7 percent (with a range of possibilities stretching from a negative 1.3 percent to a positive 6.7 percent).
Originally posted in thread: 51714