Bogle's commets on future stock returns

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bb
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Bogle's commets on future stock returns

Post by bb »

Have read/listened to John Bogle's comments regarding future expected stock returns:

http://www.google.com/url?sa=t&rct=j&q= ... _H_SQVBR_A

States return of stocks is (dividend yield + earnings yield +/- change in p/e ration)

I understand the logic but my question is what factors are causing the expected return of stocks
to be less than their historical average? Are companies expected to be less profitable in the
future or are shareholders just getting a smaller portion of the return? If dividends used to be
4 1/2 percent and they are 2 percent today where is the other 2 1/2 percent going?

Brian
Last edited by bb on Fri Oct 21, 2011 4:03 pm, edited 1 time in total.
pkcrafter
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Re: Bogle's commets on future stock returns

Post by pkcrafter »

Your link apparently requires registration, but to address your question, the economy, current yields, the outlook on company earnings (or GDP), and the present P/E ratio are what generate future expectations. John Bogle explains how he derived his estimated future stock returns in this interview. You can watch the video or simply read the text. The missing 2% has been missing for a long time now. It is not being returned to share holders, instead, companies are supposedly reinvesting it for the good of the shareholders, but coincidentally, CEO pay has risen from about 40X average employee salary to about 500X employee salary over the past 20 years.

Bogle:
And using that analysis, I'd say the 2%-plus dividend yield, let’s say a 5% or 6% earnings growth, let’s call it a 7% return, and maybe a loss of a point in a lower P/E, or maybe not. So putting it all together, you get around a 7% forecast outlook for stocks,

http://www.morningstar.com/cover/videoc ... 707#page=0


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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bob90245
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Re: Bogle's commets on future stock returns

Post by bob90245 »

pkcrafter wrote:The missing 2% has been missing for a long time now.
Agreed. These charts show changes in dividend yields over time.

Image
Image
Source: http://www.marketoracle.co.uk/Article7124.html

Also need to consider that dividends dropped to 2% in the late 1990's. This was about the time that tech and related companies became dominant. And these companies are not known for paying much of a dividend if any. Only need to look at the largest tech company, Apple, to see how the market has shifted.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
Clive
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Re: Bogle's commets on future stock returns

Post by Clive »

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Last edited by Clive on Tue Oct 23, 2012 5:17 pm, edited 1 time in total.
Topic Author
bb
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Joined: Wed Apr 25, 2007 10:04 pm

Re: Bogle's commets on future stock returns

Post by bb »

Fixed link. Sorry about that. Sometimes a google search allows you to see
content but when you copy the url after you are at the content you can't use
that url to see the content anymore.
pkcrafter
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Re: Bogle's commets on future stock returns

Post by pkcrafter »

Thanks for providing a new link, it worth the read.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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