Predicting US equity return starting Jan 2000

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Predicting US equity return starting Jan 2000

Post by lazyday » Wed Sep 27, 2017 5:59 am

If on 1/1/2000 you guessed that in 17.5 years CAPE would be 30, what return would you have predicted, using today’s methods? Can we learn anything by comparing that prediction to the actual return?

My math is probably wrong, but I get about 0.5% real expected return.

Yield + growth = 1.2 + 1.3 = 2.5%. CAPE reversion from 44 to 30 brings that down to 0.5%, or would if my math were correct.

Actual real return was 3%. About .7% of the difference seems to be from earnings growth of 2% instead of 1.3%.

Lazy sources:

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