Shiller - S&P 500 may reach 1430 by 2020

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OldOne
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by OldOne » Tue Jun 26, 2012 11:11 pm

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idahospud
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by idahospud » Tue Jun 26, 2012 11:53 pm

....and here I thought Adrian had returned to this forum...was going to ask if his allocation was still 100% in equity...but no need to ask, he still is gone from here and only active at the Morningstar forum.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Ed 2 » Sat Jan 05, 2013 10:21 am

Bumping up this one.It is fun to read old staff.
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by jeffyscott » Sat Jan 05, 2013 10:46 am

So, since we are there (again), I guess Shiller would estimate expected real, price only, return of 0% over the next 7 years. Since there is a 2% yield, the total expected real return would appear to be 2%, right?
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by NYBoglehead » Sat Jan 05, 2013 11:05 am

jeffyscott wrote:So, since we are there (again), I guess Shiller would estimate expected real, price only, return of 0% over the next 7 years. Since there is a 2% yield, the total expected real return would appear to be 2%, right?


Well come on now, how was he to predict that X, Y and Z would have happened? That obviously changes the forecast going forward.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Ed 2 » Sat Jan 05, 2013 11:17 am

NYBoglehead wrote:
jeffyscott wrote:So, since we are there (again), I guess Shiller would estimate expected real, price only, return of 0% over the next 7 years. Since there is a 2% yield, the total expected real return would appear to be 2%, right?


Well come on now, how was he to predict that X, Y and Z would have happened? That obviously changes the forecast going forward.


it proofs that NO ONE can predict anything correct. It does't meter how smart you are. Just stay the coarse,invest,tune off the noise, don't invest emotionally, be an optimist within.. :happy
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by jeffyscott » Sat Jan 05, 2013 1:27 pm

Let me clarify that my prior post was not at all intended as "ha, ha, Shiller was wrong", I was just pointing out what his expectation likely would be today.

There was no prediction, there certainly was no prediction that to reach 1430 prior to 2020 is an impossibility. Watch the video. He was asked where it would be in 2020 and he said it's very hard to tell, but his guess is 1430...and then goes on to explain his analysis, which is clearly just a statement of expectations. Obviously, Shiller knows that the P/E10 could be very high or very low at any particular point in time and so the actual price could vary widely.

Shiller certainly is not alone in suggesting that we should expect low real returns. If he would be saying 2% real now, he is an optimist compared to GMO's 0.2% in their latest 7 year forecast.

Bogle estimated a more optimistic 4.5% real in mid October:
http://www.morningstar.com/cover/videoc ... ?id=571370

I'm sure Shiller would agree that 0 and 4.5% are well within the range of potential outcomes.

It also seems like maybe Shiller was saying 1430 in today's dollars?
The growth of real inflation directed earnings is surprisingly low. From 1890 to 1990 it was only 1.5 percent a year," he said.

"I take earnings and I extrapolate them out at 1.5 percent from where they—S&P earnings—are now and then I apply a price earnings ratio of 15, which is the historical average for 1890 to 1990," Shiller said


If so, adding 2.5% inflaton, that 1430 would be something like 1700.
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HomerJ
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by HomerJ » Sat Jan 05, 2013 2:33 pm

Very interesting reading... Just two years ago and people are talking about lack of oil and energy, and how it's going to doom growth...

And now we have fracking, and huge natural gas deposits found...

We can't even predict TWO years into the future.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Grt2bOutdoors » Sat Jan 05, 2013 5:16 pm

HomerJ wrote:Very interesting reading... Just two years ago and people are talking about lack of oil and energy, and how it's going to doom growth...

And now we have fracking, and huge natural gas deposits found...

We can't even predict TWO years into the future.


Believe it was Simmons who said we'd be running out of oil.
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Noobvestor » Sat Jan 05, 2013 7:10 pm

GMO predicts about 0 to 1 percent real returns on US equities over the next seven years (ex-US at 4 to 6 percent). Just throwing that in as another big guru suggesting returns will be low for a while, as well as a reminder that international equities are a good way to hedge single-country underperformance.
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by HomerJ » Sat Jan 05, 2013 11:19 pm

Noobvestor wrote:GMO predicts about 0 to 1 percent real returns on US equities over the next seven years (ex-US at 4 to 6 percent). Just throwing that in as another big guru suggesting returns will be low for a while, as well as a reminder that international equities are a good way to hedge single-country underperformance.


That just makes me want to invest more in US equities, and less in International...

So weird that the popular wisdom seems to be almost always wrong in the field of investing.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Ed 2 » Sun Jan 06, 2013 1:45 am

HomerJ wrote:
Noobvestor wrote:GMO predicts about 0 to 1 percent real returns on US equities over the next seven years (ex-US at 4 to 6 percent). Just throwing that in as another big guru suggesting returns will be low for a while, as well as a reminder that international equities are a good way to hedge single-country underperformance.


That just makes me want to invest more in US equities, and less in International...

So weird that the popular wisdom seems to be almost always wrong in the field of investing.


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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by TJSI » Sun Jan 06, 2013 8:04 pm

Confusion certainly abounds. The Siegel return is a frictionless compounding model which athough interesting and useful does not really exist. Shiller is talking about a change in the S&P level due to earnings growth and any possible change in valuation (P/E). And the Gordon model ( and variations of it) will give another return as it assumes a dividend stream but no compounding. It is always helpful to explain clearly what "return" is being discussed but unfortunately it is not always clear.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by tadamsmar » Sun Jan 06, 2013 8:55 pm

It's rude to bump a thread like this! Professor Shiller is a highly respected broken clock. Out of deference, we should forget his bad predictions and only recall the good ones. :wink:

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Ed 2 » Sun Jan 06, 2013 9:22 pm

tadamsmar wrote:It's rude to bump a thread like this! Professor Shiller is a highly respected broken clock. Out of deference, we should forget his bad predictions and only recall the good ones. :wink:

Let's just egnore and follow all predictions. This guy was just lucky enough to be correct ones and all away sadden he become untouchable. Just let's start time the market lol
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by mur44 » Sun Nov 22, 2015 7:49 pm

This thread has been dormant for a few years.

Any thoughts on why this forecast was so wrong?
or we need to wait 5 more years to find out if
Prof. Schiller's forecast is any good.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by small_index » Sun Nov 22, 2015 10:41 pm

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Last edited by small_index on Sat Dec 12, 2015 1:10 am, edited 1 time in total.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Maynard F. Speer » Sun Nov 22, 2015 10:55 pm

mur44 wrote:This thread has been dormant for a few years.

Any thoughts on why this forecast was so wrong?
or we need to wait 5 more years to find out if
Prof. Schiller's forecast is any good.


Valuations give a rough estimate of where things should be over 10-20 years .. He's no better at reading/forecasting them than anyone else (and he'd never claim to be)

Simple reason markets have kept rising is because we've kept injecting them with QE ... And we may well do it again - and possibly again - before we let markets correct ... Valuations can't tell you about Fed policy - but so far there's little evidence QE actually fixes the market's problems ... So at some point the gravitational pull of mean reversion will likely land markets back where they need to be
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by randomguy » Sun Nov 22, 2015 11:13 pm

mur44 wrote:This thread has been dormant for a few years.

Any thoughts on why this forecast was so wrong?
or we need to wait 5 more years to find out if
Prof. Schiller's forecast is any good.


Yep you have to wait another 4-5 years. For example maybe the S&p 500 goes up to ~3k over the next 3 years and then drops 50%. That gets us to about 1430 in 5 years.

Seriously all these type of predication are slightly better than tea leave reading. There are 8 zillion of them and the couple that turn out to be right get a lot of press. Go back and read the ones done in 1990, 2000, 2010, and so on and decide how accurate they have been. Odds are the next 10 years will return in the 7-12% range. Most 10 year periods do. You could get an outlier either way but predicating that is hard.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by baw703916 » Sun Nov 22, 2015 11:24 pm

Well, it did reach 1430 by 2020--well before 2020 in fact.

So, I guess he was right? :beer
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by jalbert » Mon Nov 23, 2015 11:10 pm

It does beg the question of why anyone should believe the Shiller Cape ratio, or any other P/E ratio for that matter, has any predictive value.

-jalbert

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Maynard F. Speer » Tue Nov 24, 2015 4:13 am

jalbert wrote:It does beg the question of why anyone should believe the Shiller Cape ratio, or any other P/E ratio for that matter, has any predictive value.

-jalbert


It shouldn't beg that question ... These are tools for estimating distributions - I'd argue rather it begs the question of how comfortable people are applying statistics

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Dulocracy » Tue Nov 24, 2015 12:30 pm

Is this the "noise" they warned me about? It is dark and scary, and it makes me realize that I need to increase my savings rate. How to do that with a baby on the way?
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Rodc » Tue Nov 24, 2015 2:44 pm

Dulocracy wrote:Is this the "noise" they warned me about? It is dark and scary, and it makes me realize that I need to increase my savings rate. How to do that with a baby on the way?


Cloth diapers.

Baby modeling.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by k66 » Tue Nov 24, 2015 4:52 pm

Dulocracy wrote:Is this the "noise" they warned me about? It is dark and scary, and it makes me realize that I need to increase my savings rate. How to do that with a baby on the way?


How about this? Take care of baby first and enjoy the time while you have it. They only stay that way for awhile so don't miss out on this time by undertaking an unrealistic savings plan that possibly reduces the quality that you could otherwise enjoy.

Then save what you can. You probably have a long enough horizon that you don't need to worry about sketchy short-, medium-, or long-term prognostications. Pessimistic predictions are as likely to come true as optimistic ones and neither have any good track record.
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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by Dulocracy » Mon Nov 30, 2015 1:51 pm

k66 wrote:
How about this? Take care of baby first and enjoy the time while you have it.

Agreed.

Pessimistic predictions are as likely to come true as optimistic ones and neither have any good track record.

Sage advice.


Rodc wrote:
Cloth diapers.

Maybe I do not need as much money as I thought...
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by small_index » Mon Nov 30, 2015 9:01 pm

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by biscuits222 » Tue Dec 01, 2015 6:52 am

Maynard F. Speer wrote:Simple reason markets have kept rising is because we've kept injecting them with QE ... And we may well do it again - and possibly again - before we let markets correct ... Valuations can't tell you about Fed policy - but so far there's little evidence QE actually fixes the market's problems ... So at some point the gravitational pull of mean reversion will likely land markets back where they need to be


Profits have gone up from the recession bottom, dividends have been growing 5-10% a year, employment is up and worker earnings have grown meaning more cash for putting into stocks - total market return is from many sources. Most S&p500 profit growth in future will be from markets outside USA (Apple's profit in China just doubled for example). The markets don't "need to be" anywhere higher or lower, there is no proper price, we get what we get. Ideally they would crash to zero so I could buy up the entire global stock market and collect all the dividends and be the richest guy ever. In the meantime we get the random price return with the more stable dividend return and muddle through like always.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by William Million » Tue Dec 01, 2015 7:05 am

I'll get flamed by the PE10 crowd for saying this, but Nobel Laureate Shiller's predictions are a joke.

He's always predicting recessions, and he's always right - just many years ahead of time. Doesn't take much talent. Following his advice, or PE10, is a near guarantee to under-perform. Note how Shiller believes the 2010 stock market is overvalued by using the hopelessly flawed PE10 metric.

Someday, we'll have a bear market and recession, and Shiller will be right. But you'll lose a lot of dough waiting for the rare occasion when CNBC/Yale Professor gets it right.

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by small_index » Tue Dec 01, 2015 11:29 am

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Re: Shiller - S&P 500 may reach 1430 by 2020

Post by William Million » Tue Dec 01, 2015 5:47 pm

small_index wrote:
William Million wrote:He's always predicting recessions, and he's always right - just many years ahead of time. Doesn't take much talent. Following his advice, or PE10, is a near guarantee to under-perform. Note how Shiller believes the 2010 stock market is overvalued by using the hopelessly flawed PE10 metric.

It's a bit strong and wrong to call CAPE 10 "hopelessly flawed" when it actually has predictive value in the 7-10 year time frame. I agree that listening to people predict disaster enough, and they'll eventually be right. There was a recent study about shifting stocks/bonds according to CAPE 10, to try and be more vested based on expected returns. But compared to buy & hold, it didn't seem to gain a benefit. So I agree with not using predictions, but disagree that CAPE 10 is "hopelessly flawed" as you put it.


I agree PE10 might be useful if applied alongside 20 other metrics. However, PE10 is simply too limited in scope to be useful for most investors. It's like assessing the health of a car's engine solely by examining how quickly it burns oil. As you point out, buy and hold will beat a purely PE10 approach.

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