Morningstar: prepare for a lost decade for U.S. stocks

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CULater
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Morningstar: prepare for a lost decade for U.S. stocks

Post by CULater » Thu Jul 05, 2018 8:19 am

“Our expectation at the moment is that you won’t have any real return from U.S. equities over the next 10 years,” said Morningstar’s Dan Kemp at a company event Wednesday in London. In the chart he shared below, the black line is pretty close to zero for American stocks.
Image

https://www.marketwatch.com/story/brace ... 2018-07-05

Is it finally time to go anti-Bogle and get into foreign stocks big-time?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by retiringwhen » Thu Jul 05, 2018 8:31 am

Well in portfolio, the international index stock funds have been dropping like a rock since the 1st quarter (down on share price by between 10 and 20%, US stocks have been essentially flat), I am basically rebalancing into them just go keep my desired 20% allocation in international. discipline, discipline, discipline....

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by Jordan4FI » Thu Jul 05, 2018 8:41 am

Sure hope not, this is supposed to be my final 10 years of working... But also, as long as I hold tons of shares then it might be ok to lay low after 10 years for a while and let them rise up and up naturally.. Noodles and Rice for the first few years of FIRE..LOL.. noodles cause I'll be in Thailand

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by k66 » Thu Jul 05, 2018 8:53 am

Mornigstar wrote:“Our expectation at the moment is that you won’t have any real return from U.S. equities over the next 10 years,” said Morningstar’s Dan Kemp at a company event Wednesday in London. In the chart he shared below, the black line is pretty close to zero for American stocks.
CULater wrote:Is it finally time to go anti-Bogle and get into foreign stocks big-time?
So, is it time to abandon the best portfolio- and wealth-building methodology that we know of in favour of a squiggly black line? A squiggly black line which is based on analysis that we know is imperfect and really has little to no predictive capacity?

I know my answer.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by EyeYield » Thu Jul 05, 2018 8:54 am

The thread title triggered worries, but then I read “at the moment” and was somewhat relieved. From my experience, there will be another, different, moment along shortly.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

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TheTimeLord
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by TheTimeLord » Thu Jul 05, 2018 8:57 am

The BH noise filter is definitely broken.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by vineviz » Thu Jul 05, 2018 8:58 am

k66 wrote:
Thu Jul 05, 2018 8:53 am
Mornigstar wrote:“Our expectation at the moment is that you won’t have any real return from U.S. equities over the next 10 years,” said Morningstar’s Dan Kemp at a company event Wednesday in London. In the chart he shared below, the black line is pretty close to zero for American stocks.
CULater wrote:Is it finally time to go anti-Bogle and get into foreign stocks big-time?
So, is it time to abandon the best portfolio- and wealth-building methodology that we know of in favour of a squiggly black line? A squiggly black line which is based on analysis that we know is imperfect and really has little to no predictive capacity?

I know my answer.
The best portfolios already have enough non-U.S. stocks to weather a decade like the one being predicted (and any other decades for that matter).

It’s the investors who own only U.S. stocks that should be reconsidering their methodology.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by Tdubs » Thu Jul 05, 2018 9:00 am

Throw this on the pile of prognostications. It isn't the first "lost decade" forecast.

But yeah, if you are in the final push to retirement (I'm about 8 years out), this is the big worry. It makes you consider more conservative fixed investments.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by davidsorensen32 » Thu Jul 05, 2018 9:06 am

This is GREAT news for those of us who are to doomed to the salt mines during the next decade. We get to buy cheap stocks :sharebeer

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by samsdad » Thu Jul 05, 2018 9:10 am

Oh thank God! I have been getting really tired of buying increasingly expensive US equities! Stay flat until I need to retire, then go through the roof!

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by davidsorensen32 » Thu Jul 05, 2018 9:12 am

+1000000000
samsdad wrote:
Thu Jul 05, 2018 9:10 am
Oh thank God! I have been getting really tired of buying increasingly expensive US equities! Stay flat until I need to retire, then go through the roof!

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by wootwoot » Thu Jul 05, 2018 9:15 am

This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?

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JoMoney
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by JoMoney » Thu Jul 05, 2018 9:21 am

I wonder why they don't explain how their model comes to such conclusions.
Do they expect growth to slow down even more than it has over the past decade, why?
Do they expect price multiples to come down, why?
How is it whatever factors they're using will impact US markets, but not others?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by samsdad » Thu Jul 05, 2018 9:22 am

wootwoot wrote:
Thu Jul 05, 2018 9:15 am
This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?
I don’t know, but my return on my good mood is up like 200% all of a sudden, so I say keep it up!

Everyone else, please heed this advisory by M* and invest in EM Europe, which should be going gangbusters for some reason in the next 10 years.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by vineviz » Thu Jul 05, 2018 9:24 am

wootwoot wrote:
Thu Jul 05, 2018 9:15 am
This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?
Because this forum is called "Investing - Theory, News & General"? Morningstar reporting their expectations for future investment returns, based on financial theory, is entirely on-topic.

More directly, knowing that economists EXPECT U.S. stock returns to underperform a global equity portfolio might jolt some investors out of their "I don't need to own foreign stocks" fantasy.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by cheese_breath » Thu Jul 05, 2018 9:24 am

Jordan4FI wrote:
Thu Jul 05, 2018 8:41 am
Sure hope not, this is supposed to be my final 10 years of working...
Well then doesn't mean you'll have 10 years of buying cheap before the next surge?
The surest way to know the future is when it becomes the past.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by staythecourse » Thu Jul 05, 2018 9:26 am

vineviz wrote:
Thu Jul 05, 2018 9:24 am
wootwoot wrote:
Thu Jul 05, 2018 9:15 am
This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?
Because this forum is called "Investing - Theory, News & General"? Morningstar reporting their expectations for future investment returns, based on financial theory, is entirely on-topic.

More directly, knowing that economists EXPECT U.S. stock returns to underperform a global equity portfolio might jolt some investors out of their "I don't need to own foreign stocks" fantasy.
If the data is anywhere close to interest rates (which should be more predictable) economists are likely less correct then not in predicting stock returns. So maybe an inverse indicator?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by nedsaid » Thu Jul 05, 2018 9:38 am

Boy, I don't know. Forward P/E ratios are not looking too bad here. The US Total Stock Market is about 17 and I did some analysis on Value Funds yesterday and saw forward P/E's of 13-15. Granted, we have seen great earnings and forward earnings estimates might be too optimistic, but these P/E ratios are beginning to look cheap to me. Trailing P/E's on the S&P 500 according to Seeking Alpha are at 20.59. Not bad.

I remember that at the peak of the tech mania of the 1990's, forward P/E ratios were about 32 and trailing P/E ratios were about 45. This is not early 2000. I think the market is looking attractive.
A fool and his money are good for business.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by Tdubs » Thu Jul 05, 2018 9:41 am

JoMoney wrote:
Thu Jul 05, 2018 9:21 am
I wonder why they don't explain how their model comes to such conclusions.
Do they expect growth to slow down even more than it has over the past decade, why?
Do they expect price multiples to come down, why?
How is it whatever factors they're using will impact US markets, but not others?
Plenty of analysts have said the U.S. market is comparatively over valued, and there are good reasons to think so. And there are good reasons to think there will be long-term drags on the U.S. economy going forward that are unique in its history. They may be wrong, but I'm not going to be dismissive.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by GoldenFinch » Thu Jul 05, 2018 9:49 am

Many moons ago I used to look at Morningstar reports. They turned out to be a huge waste of my time.

One thing I have been able to predict: when a financial website has an article predicting stocks will go up, there will also be an article nearby predicting they will go down.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by ChinchillaWhiplash » Thu Jul 05, 2018 9:54 am

There have been many forecast by very respected individuals in finance/investing that are expecting much lower returns from US equities. This is why I personally went with an AA that includes value tilts along with a decent sized chunk in DM and EM. I think the more you can diversify the better.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by TheTimeLord » Thu Jul 05, 2018 9:58 am

vineviz wrote:
Thu Jul 05, 2018 9:24 am
wootwoot wrote:
Thu Jul 05, 2018 9:15 am
This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?
Because this forum is called "Investing - Theory, News & General"? Morningstar reporting their expectations for future investment returns, based on financial theory, is entirely on-topic.

More directly, knowing that economists EXPECT U.S. stock returns to underperform a global equity portfolio might jolt some investors out of their "I don't need to own foreign stocks" fantasy.
Economists have a poor track record predicting economic growth, why would anyone trust them in regards to stock prices, earning and PE ratios?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by JoMoney » Thu Jul 05, 2018 10:10 am

TheTimeLord wrote:
Thu Jul 05, 2018 9:58 am
vineviz wrote:
Thu Jul 05, 2018 9:24 am
wootwoot wrote:
Thu Jul 05, 2018 9:15 am
This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?
Because this forum is called "Investing - Theory, News & General"? Morningstar reporting their expectations for future investment returns, based on financial theory, is entirely on-topic.

More directly, knowing that economists EXPECT U.S. stock returns to underperform a global equity portfolio might jolt some investors out of their "I don't need to own foreign stocks" fantasy.
Economists have a poor track record predicting economic growth, why would anyone trust them in regards to stock prices, earning and PE ratios?
They're about as good as a coin flip, but they make for a better narrative. Nobody pays attention to a coin flip unless you give it some sort of credential and lots of impressive data points arranged in a compelling way. It sells better than a coin flip, even when people know it's no more reliable.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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nedsaid
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by nedsaid » Thu Jul 05, 2018 10:12 am

TheTimeLord wrote:
Thu Jul 05, 2018 9:58 am
vineviz wrote:
Thu Jul 05, 2018 9:24 am
wootwoot wrote:
Thu Jul 05, 2018 9:15 am
This post is trollbait. Nobody know what future stock returns will be. Why are posts like this allowed?
Because this forum is called "Investing - Theory, News & General"? Morningstar reporting their expectations for future investment returns, based on financial theory, is entirely on-topic.

More directly, knowing that economists EXPECT U.S. stock returns to underperform a global equity portfolio might jolt some investors out of their "I don't need to own foreign stocks" fantasy.
Economists have a poor track record predicting economic growth, why would anyone trust them in regards to stock prices, earning and PE ratios?
Well, their track record is better than mine. I am right about something around here only about every six months or so. :wink:
A fool and his money are good for business.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by jminv » Thu Jul 05, 2018 10:12 am

Forecasts of low (or in this case 0%) returns for the US stocks over the next 10 years and gloomy news articles about yield curve inversion...which isn't in fact inverted seem to be popping up multiple times a day now. A contrarian might take that as a signal that the good times will roll on a bit more. In any case, it's hard to take any 10 year forecast credibly since it's almost certainly going to be wrong given the track record of economic forecasting. Of course, if I took thousands of forecasts/noise, aggregated them, and looked back after ten years one might be right by random chance.

It's interesting they're forecast focuses on EM Europe among others, isn't it? Regions that people don't know too much about and where investors need the help of the 'experts' and providers of investment research, such as Morningstar or at the very least a visit to a friendly investment advisor at one of the firms that Morningstar sells their products to.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by vineviz » Thu Jul 05, 2018 10:29 am

TheTimeLord wrote:
Thu Jul 05, 2018 9:58 am
Economists have a poor track record predicting economic growth, why would anyone trust them in regards to stock prices, earning and PE ratios?
Cullen Roche takes a fairly pragmatic approach to this, avoiding the parallel traps of having blind faith in forecasts and pretending that forecasting is entirely irrelevant. All quotes are his.
Forecasting isn’t just a reality as forward looking animals, but it’s a crucial element of our existence and our very ability to survive.
. . . we should just be trying to understand the potential impacts of certain economic and market events so we can create a high probability of creating successful policies or positioning ourselves so we’re prepared for the potential risks and rewards that might arise. It’s sort of like preparing to set sail across an ocean. You would never claim to be able to predict the weather or conditions you might encounter, but you can understand your path, potential weather patterns and how your vessel operates so you can increase the odds that you will make if there in one piece.
Some people on the market side of things will argue that we shouldn’t bother making market forecasts either. But this is a naive view of the world. As I’ve explained before, anyone making a directional bet on certain asset classes is making an implicit underlying macroeconomic forecast. The fact that some investors choose not to change their forecasts over time doesn’t mean they are engaging in “forecast free” investing. It just means that their forecast is static.
No one’s a fortune teller. No one knows the future precisely. But that doesn’t mean we have to go through life in a dogmatic haze pretending it’s all just a big random walk that is completely unpredictable.
I think anyone holding a TRULY global market cap weighted portfolio can legitimately say "who cares". Everyone else entirely dismissing the role of forecasting is, whether they admit it or not, engaging in self-delusion on the way to confirmation bias.
Last edited by vineviz on Thu Jul 05, 2018 10:35 am, edited 2 times in total.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by KyleAAA » Thu Jul 05, 2018 10:33 am

I'm globally diversified so this doesn't particularly alarm me either way, but remember that nobody knows nothing. Morningstar can't predict the future any better than you can, and I think they'd be the first to admit it. The last decade was very good to me so if I have to make due on 1-2% real over the next decade, that doesn't seem so bad.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by TheTimeLord » Thu Jul 05, 2018 10:44 am

vineviz wrote:
Thu Jul 05, 2018 10:29 am
TheTimeLord wrote:
Thu Jul 05, 2018 9:58 am
Economists have a poor track record predicting economic growth, why would anyone trust them in regards to stock prices, earning and PE ratios?
Cullen Roche takes a fairly pragmatic approach to this, avoiding the parallel traps of having blind faith in forecasts and pretending that forecasting is entirely irrelevant. All quotes are his.
. . . we should just be trying to understand the potential impacts of certain economic and market events so we can create a high probability of creating successful policies or positioning ourselves so we’re prepared for the potential risks and rewards that might arise. It’s sort of like preparing to set sail across an ocean. You would never claim to be able to predict the weather or conditions you might encounter, but you can understand your path, potential weather patterns and how your vessel operates so you can increase the odds that you will make if there in one piece.
Some people on the market side of things will argue that we shouldn’t bother making market forecasts either. But this is a naive view of the world. As I’ve explained before, anyone making a directional bet on certain asset classes is making an implicit underlying macroeconomic forecast. The fact that some investors choose not to change their forecasts over time doesn’t mean they are engaging in “forecast free” investing. It just means that their forecast is static.
No one’s a fortune teller. No one knows the future precisely. But that doesn’t mean we have to go through life in a dogmatic haze pretending it’s all just a big random walk that is completely unpredictable.
I think anyone holding a TRULY global market cap weighted portfolio can legitimately say "who cares". Everyone else dismissing the role of forecasting is, whether they admit it or not, engaging in self-delusion on the way to confirmation bias.
What people are likely engaged in is the admission this is something they can neither control or rely on so they choose to take no action. Instead they are choosing to continue executing their plans and accepting the outcome. Unless you are going to take action based on forecasts what value do they have? The part I highlighted red is just funny because it is you expressing bias against those who don't share you viewpoint.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by Nowizard » Thu Jul 05, 2018 10:56 am

If no one knows where the market is going, then diversity is basically the only rational choice we can make. Within diversification, there are numerous ways to focus on the areas of stocks and bonds, including changing ratios based on factors other than age and total assets. It may not make sense for many to increase international allocations, but it is defensible. Rationality does include responding to real or perceived issues and not remaining overly rigid in all aspects of life. Boglehead philosophies are rational and evidence based, but imperfect.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by lostdog » Thu Jul 05, 2018 10:57 am

Glad to be world market cap so I am in the "who cares" crowd but in the end this is just noise.
Last edited by lostdog on Thu Jul 05, 2018 11:02 am, edited 1 time in total.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by JoMoney » Thu Jul 05, 2018 10:57 am

vineviz wrote:
Thu Jul 05, 2018 10:29 am
... Everyone else dismissing the role of forecasting is, whether they admit it or not, engaging in self-delusion on the way to confirmation bias.
Do you have evidence that paying attention and making changes to investment portfolios based on forecasting has been a good thing for most investors?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by Jordan4FI » Thu Jul 05, 2018 11:11 am

cheese_breath wrote:
Thu Jul 05, 2018 9:24 am
Jordan4FI wrote:
Thu Jul 05, 2018 8:41 am
Sure hope not, this is supposed to be my final 10 years of working...
Well then doesn't mean you'll have 10 years of buying cheap before the next surge?
YES!! exactly that.. but would need to lay low for a while to let it grow..

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by vineviz » Thu Jul 05, 2018 11:27 am

TheTimeLord wrote:
Thu Jul 05, 2018 10:44 am
What people are likely engaged in is the admission this is something they can neither control or rely on so they choose to take no action. Instead they are choosing to continue executing their plans and accepting the outcome.
Obviously it is true that none of us, certainly not individually, can exert any control over future global market returns. That's not the same thing as saying that forecasts are completely unactionable.

If the weather forecast is for rain it is true that I have little power to control whether it rains or not. I DO however, have the power to decide whether it is prudent to carry an umbrella or close the sunroof in my car.

Likewise, can investor who has no power to control future stock market returns DOES have the power to evaluate whether their asset allocation is best positioning them to meet their goals.

Choosing to take no action is, in fact, an action.

Don't misunderstand me: I know full well that forecasts like this have a LOT of uncertainty built in to them. Using a forecast like Morningstar's to justify moving from 100% US stocks to 100% emerging markets stocks would be an action I don't condone, and not just because it implies an undue amount of faith in the accuracy and precision of the forecast.

If an investor looks at a forecast like this and, based on reasonable expectations, concludes their current allocation provides them with an acceptable level of expected returns and expected risk I have no issue with that. Indeed, that's where I am. I don't need to adjust my asset allocation based on a forecast like this because the POSSIBILITY of a decade like the one being forecasted was already incorporated.

I do freely admit that the seemingly constant anti-intellectual refrain from some quarters does make me grumpier than I should be.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by petulant » Thu Jul 05, 2018 11:30 am

The forecasts and analyses identifying risks of U.S. stocks over the next few years aren't a good reason to change one's investment portfolio in themselves, but they are a good reminder to make sure each person is taking on risk that they are comfortable with.

We know that non-U.S. stocks are highly correlated with U.S. stocks; portfoliovisualizer shows .90 as the r2 over the last ~10 years. On the other hand, the U.S. stock market currently has a high exposure to large technology stocks, meaning a hit to their valuations will impact U.S. stocks more than non-U.S. stocks. We know from experience that it is possible for a specific country's or region's stocks, especially if they have different sector exposures, to decline more than others in downturns or just come unmoored for several years. The classic example is Japanese indexes; they overperformed and then took a fall in the 90s, but since they have been fairly correlated with Europe and U.S.

Here's a portfoliovisualizer graph showing U.S. (Port 1), Europe (Port 3), and Pacific (Port 2) stock returns since 1987. Japanese stocks dominate the Pacific equity universe.

Image

Here's the same graph since 1999--highlighting how closely correlated Pacific has been to other equities.

Image

So, as you can see, it's possible for one country/region to come unmoored from its correlation to global equities for a few years.

And, over the last few years, it has been U.S. stocks themselves that have come unmoored, overperforming significantly as you can see from the first graph above. Now, both Japan and Europe have lower P/E ratios. We've got U.S. stocks exposed more technology, facing the possibility of major trade issues, and looking at other potential headwinds.

Does that mean U.S. stocks will inevitably fall? No. But again, it's a good reminder to make sure we're comfortable with single-country risk exposure and with our equity-fixed income allocations. Past experience shows us the party can end. That doesn't mean we need to leave right now, but it's a good idea to make sure we pace ourselves so we can drive home if the party does stop.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by lukestuckenhymer » Thu Jul 05, 2018 11:32 am

I am 60/40 US/Intl, but consistent warnings about the coming decade are making me wonder if I should finally go World Cap and call it a day.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by nisiprius » Thu Jul 05, 2018 11:38 am

Did they make a similar forecast ten years ago, and, if so, what did it say? I'm semi-serious about that. You should see if you can find an email address for Dan Kemp and ask.

Haven't had any luck finding an email address, but I think this is him on
Twitter:
https://twitter.com/dan_the_analyst?lang=en
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by CULater » Thu Jul 05, 2018 11:44 am

nisiprius wrote:
Thu Jul 05, 2018 11:38 am
Did they make a similar forecast ten years ago, and, if so, what did it say? I'm semi-serious about that. You should see if you can find an email address for Dan Kemp and ask.

Haven't had any luck finding an email address, but I think this is him on
Twitter: https://twitter.com/dan_the_analyst?lang=en
Unfortunately I still haven't really figured out how to use Twitter as an email substitute.
Why are you just "semi" serious? :)
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by nisiprius » Thu Jul 05, 2018 11:45 am

CULater wrote:
Thu Jul 05, 2018 11:44 am
nisiprius wrote:
Thu Jul 05, 2018 11:38 am
Did they make a similar forecast ten years ago, and, if so, what did it say? I'm semi-serious about that. You should see if you can find an email address for Dan Kemp and ask.

Haven't had any luck finding an email address, but I think this is him on
Twitter: https://twitter.com/dan_the_analyst?lang=en
Unfortunately I still haven't really figured out how to use Twitter as an email substitute.
Why are you just "semi" serious? :)
Because I'm not serious enough to actually do it myself.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by triceratop » Thu Jul 05, 2018 11:47 am

nisiprius wrote:
Thu Jul 05, 2018 11:38 am
Did they make a similar forecast ten years ago, and, if so, what did it say? I'm semi-serious about that. You should see if you can find an email address for Dan Kemp and ask.

Haven't had any luck finding an email address, but I think this is him on
Twitter:
https://twitter.com/dan_the_analyst?lang=en
They are orthogonal forms of communication, where some liberty is used with that word. With e-mail you're interested in actual communication; if you're rude in an e-mail, the Delete key is very close for your recipient.

The best way to get Dan Kemp's attention on twitter, conversely, is to stir up enough controversy that he feels he has to respond.

Disclaimer: I very much enjoy twitter.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by thangngo » Thu Jul 05, 2018 11:50 am

CULater wrote:
Thu Jul 05, 2018 8:19 am
“Our expectation at the moment is that you won’t have any real return from U.S. equities over the next 10 years,” said Morningstar’s Dan Kemp at a company event Wednesday in London. In the chart he shared below, the black line is pretty close to zero for American stocks.
https://www.marketwatch.com/story/brace ... 2018-07-05

Is it finally time to go anti-Bogle and get into foreign stocks big-time?
Awesome!!! I've been buying international stock for cheap. And now I'll get a chance to buy U.S. stock for cheap? :sharebeer :beer

Looks like I'll retire 10 years sooner than planned.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by nisiprius » Thu Jul 05, 2018 11:58 am

If anyone wants to follow up on asking Dan Kemp if Morningstar made a similar forecast ten years ago, and, if so, what it said, this paper was published on the web by Morningstar:

Retirement Planning in the UK: A comprehensive update on the safe withdrawal rate

It lists Dan Kemp as an author and indicates an email address.
Last edited by nisiprius on Thu Jul 05, 2018 12:05 pm, edited 1 time in total.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by HomerJ » Thu Jul 05, 2018 12:08 pm

I went looking for PAST morningstar predictions. They are not easy to find.

Why is that? Why don't they have predictions posted online from 2003 or 2008 or 2012 that shows how accurate their past predictions were?

I did find this article from 2012

https://www.nasdaq.com/article/market-v ... 2-cm139016
As Dow Jones averages hits its highest market since 2007, comfortably site above 13,000, it is time to review the market valuations again. The S&P500 has gained closed to 12% in the first four months of the year. Many of the users on GuruFocus are growing more cautious. We know that higher past returns always means lower future returns and higher risks.
Conclusion: The market is not cheap. It is positioned for about 2-4% of annual returns for the next decade.
Well, it hasn't been a decade yet, so they may still be right.

But over the past 6 years since May 2012, we've gotten 14% annual returns. Not 2%-4%. That's not a little bit off. That's completely out of the ball park.

Anyone who went defensive in 2012 BECAUSE OF VALUATIONS and that article missed out on more than doubling their money.

That's not to say we won't see a crash tomorrow. We might. It absolutely could happen. I'm not saying that the market will keep going up. I'm not saying that I can predict the future. I'm saying NO ONE ELSE CAN.

Too many variables (and the variables even CHANGE over time), and not enough data points means making a good model is very hard.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by HomerJ » Thu Jul 05, 2018 12:19 pm

ChinchillaWhiplash wrote:
Thu Jul 05, 2018 9:54 am
There have been many forecast by very respected individuals in finance/investing that are expecting much lower returns from US equities. This is why I personally went with an AA that includes value tilts along with a decent sized chunk in DM and EM. I think the more you can diversify the better.
Those very respected individuals made forecasts in the past that were wrong.

Schiller himself, the guy who got a NOBEL PRIZE, and is the inventor of the CAPE 10 that all valuation people use, predicted 0% real return for the next 10 years in 1996 based on valuations.

Instead we got 6% real from 1996-2006, very close to the historical average, even though 1996 had valuations not seen since right before the Great Depression. In fact, buying in 1996, at "extreme" valuations, was one the best times to buy stocks in the past 22 years.

Valuations have not really worked as a predictive tool for the past 25-30 years.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by CULater » Thu Jul 05, 2018 12:31 pm

Here's Cliff Asness on valuation:

“Valuation of markets is a disastrous short-term market timing tool and a super weak strategy over all but the longest horizons.”

Not sure what the "longest horizons" are, and if 10 years qualifies, but perhaps eventually valuations matter.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by HomerJ » Thu Jul 05, 2018 12:32 pm

vineviz wrote:
Thu Jul 05, 2018 11:27 am
TheTimeLord wrote:
Thu Jul 05, 2018 10:44 am
What people are likely engaged in is the admission this is something they can neither control or rely on so they choose to take no action. Instead they are choosing to continue executing their plans and accepting the outcome.
Obviously it is true that none of us, certainly not individually, can exert any control over future global market returns. That's not the same thing as saying that forecasts are completely unactionable.
Here's my advice. Always assume the market could crash tomorrow and stay down for a while. Because it could. Regardless of valuations. The risk is never zero. If you're young and still accumulating, you could still be 90/10 stocks/bonds even assuming the market might crash tomorrow.

If you're close to retirement, you might be more conservative, because the market might crash tomorrow. And that's good. You should always be prepared for a bad decade coming up. Because it could happen.

And then you don't care about forecasts. You're already prepared for bad times.
If the weather forecast is for rain it is true that I have little power to control whether it rains or not. I DO however, have the power to decide whether it is prudent to carry an umbrella or close the sunroof in my car.
Makes me very happy you used this example, because I have used the exact same example many times on this board.

I'm already prepared for a crash happening tomorrow. I'm 5 years or so from retirement, and I have a large emergency fund, and my investments are 50/50 stocks/bonds with 20% stocks in International. I don't care about valuations. I'd have the same portfolio if valuations were low.

It's like I'm always carrying an umbrella, every day. So you can run up to me, with an important article in your hand proclaiming that the chance of rain is higher today than it was yesterday because blah blah blah, and I DON'T CARE BECAUSE I ALREADY HAVE AN UMBRELLA.

If an investor looks at a forecast like this and, based on reasonable expectations, concludes their current allocation provides them with an acceptable level of expected returns and expected risk I have no issue with that. Indeed, that's where I am. I don't need to adjust my asset allocation based on a forecast like this because the POSSIBILITY of a decade like the one being forecasted was already incorporated.
Ah, then we agree. :)
I do freely admit that the seemingly constant anti-intellectual refrain from some quarters does make me grumpier than I should be.
Because we've been around, and seen most forecasts turn out wrong in the past. Ignoring that evidence would be anti-intellectual. These articles are anti-intellectual. Believing them blindly would be anti-intellectual.
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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by KlangFool » Thu Jul 05, 2018 12:36 pm

CULater wrote:
Thu Jul 05, 2018 12:31 pm
Here's Cliff Asness on valuation:

“Valuation of markets is a disastrous short-term market timing tool and a super weak strategy over all but the longest horizons.”

Not sure what the "longest horizons" are, and if 10 years qualifies, but perhaps eventually valuations matter.
OP,

My question to you is this:

1) Why do this matters to you?

2) If you do, what did you do in your IPS/AA to prepare this?

3) Conversely, it could be a lost decade for foreign stock and/or bond too.

I spread my investment across multiple asset classes. I do not care whether it is a lost decade of X, Y, and/or Z. Why should you? If you do, perhaps you need to change your AA and IPS.

KlangFool
Last edited by KlangFool on Thu Jul 05, 2018 12:51 pm, edited 1 time in total.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by KlangFool » Thu Jul 05, 2018 12:48 pm

OP,

If you believe valuation matters, then, you should pick an active fund/stock. I put 40% of my portfolio into Wellington Fund for this reason. Or, you place your bet with Warren Buffett, BRK.A or BRK.B.

KlangFool

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by Doom&Gloom » Thu Jul 05, 2018 12:54 pm

All together now: Let's veer from our course.

[and based upon one article]

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by cj2018 » Thu Jul 05, 2018 1:06 pm

I find the smart move is to generally laugh off at financial forecasts from media such as Morningstar - they are in the business of stirring emotions and encouraging unnecessary trading.

Like seriously, what do they expect us prudent investors in this case would react? Sell off US equities completely and go bananas on 100% emerging markets? lol. Give me a break!

These forecast are not really actionable. Even if U.S. stocks were to return Zero real return over the coming decade, i dare to ask what would be the better alternative? Stay the course.

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Re: Morningstar: prepare for a lost decade for U.S. stocks

Post by oldcomputerguy » Thu Jul 05, 2018 1:12 pm

TheTimeLord wrote:
Thu Jul 05, 2018 8:57 am
The BH noise filter is definitely broken.
No worries here, my noise filter is working just fine.
:wink:
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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