ThereAreNoGurus wrote: ↑
Mon Sep 09, 2019 3:27 pm
I located GMO's December 31, 2010, 7 year forecast at: https://www.valuewalk.com/wp-content/up ... 2/GMO1.pdf
I only looked into their prediction for large cap equities which was 0.4 real per year with a range of plus/minus 6.5%. However V00 returned 11.26 nominal. Inflation was probably under 2% per year over that period, but even applying GMO's assumption of 2.5% per year that knocks VOO's performance down to approx 9% real, which is still above the range predicted by GMO.
Semi-interestingly I don't see a range listed in this year's forecast.
You should check some of the others out, instead of focusing on the one that was the most off:
Int'l equities: 4.5% real (GMO estimate: 2.1%)
EM equities: 0.2% real (GMO estimate: 4.1%)
US gov't bonds: 0.8% real (GMO estimate: 0.5%)
These are within the confidence intervals. The US returns for both large and small did fall outside the confidence interval. GMO's estimates assume full mean reversion. The change in valuations between 2011 and 2017 explain a majority of the differences. US stocks got significantly more expensive and didn't mean revert, EM stocks got much cheaper and didn't mean revert, either, and international equities got slightly more expensive.
Anyone with an elementary understanding of statistics realizes outliers always exist, so I won't poo-poo a forecast like you and Taylor do just because it's not completely right every time. Some forecast is better than none, even Saint Jack made forecasts for stock and bond market returns. And let's not forget that Saint Jack was wrong with his prediction in 2010 for the next decade as well: https://money.cnn.com/2010/12/31/pf/inv ... /index.htm
. He estimated 7% for US stocks, they've delivered over 13% up to today. Doesn't mean his forecasts were not useful, it just means he was wrong and didn't correctly predict the change in valuation, which is the hardest part of predicting stock market returns.