## John Bogle’s formula says 1% real stock returns likely over next decade

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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Wed Oct 09, 2019 2:02 pm
willthrill81 wrote:
Wed Oct 09, 2019 1:57 pm
Bogle had a record of consistently underestimating stock returns. If you'll pardon the metaphor, even a broken clock is right twice a day. This no disrespect for the gentleman that Bogle was.
If you don't rate his abilities, why are you on a Bogle forum?

Anyhoo, you don't have to agree or disagree with Bogle. All you have to do to invalidate the idea is point out why the formula is wrong. Or why the inputs into it need tweaking. Which would involve explaining why you think earnings will grow more rapidly, or why multiples will expand past the currently high level.

Both of which would involve predictions about the future.
He already did. The P/E implies a 4.6% return rn. Since earnings grow at least at the rate of inflation, that represent 4.6% real return. The CAPE imples 3.5% real.

The 1% comes because the author assumed a reversion of the mean P/E (valuations get better). This is a speculative return which has nothing to do with fundamentals.

I find it ironic that you ask Will to prove why he thinks multiples will expand when his methodology assumes they don't while the author (and yourself) are assuming they will contract.
So how about you prove why the multiples will contract below the current levels?

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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Jebediah wrote:
Wed Oct 09, 2019 2:59 pm
willthrill81 wrote:
Wed Oct 09, 2019 1:16 pm

Even using 1/CAPE as an estimate for forward returns, that implies real returns of 3.5%, far better than 1%.

The current P/E ratio is 21.73, so using 1/P/E implies real returns of 4.6%.

So if earnings per share didn't grow at all over the next decade, 3.5%-4.6% seems like a reasonable 'likely' range to me.

Perhaps coincidentally and FWIW, the real returns of U.S. stocks (i.e. VTSMX) over the last 20 years, month-to-month, were 4.49%.
It makes intuitive sense that E/P implies real returns.

But does that mean Value always has higher expected returns than growth, by definition?

Even though Value has lower SD?

And despite the outcome of Value underperforming for 30 years? (not to play results but 30 years is a long time).

I'm not sure a better P/E ratio actually means better expected returns even though intuitively it should.
The E/P is the current yield. To that you substract inflation and add earnings growth.

Value companies have very little growth left and reinvest little. So they have low earnings growth (perhaps just inflation) such that their future expected returns are the E/P.

Growth companies, OTOH, are reinvesting heavily for future revenue. The earnings growth of growth companies exceeds inflation. That's why the P/E ratios tend to be higher; they have future expectations of earnings not currently realized that the market is pricing in.

Since I'm not sure what the earnings growth for growth companies is (to determine their expected real return), I just look at value companies (whose earnings just meet inflation and their current E/P is a reasonable estimate) and assume growth companies will return something in the vicinity

Edit: BTW this is why you should be careful using the S&P 500 E/P as the real return. That assumes earnings only grow with inflation. But the index has plenty of growth stocks. So the S&P 500 E/P should be an absolute minimum; if the multiples stayed constant, the market would return more than that as a whole if earnings kept growing (I.e. no recession of earnings).

rich126
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

owenmia wrote:
Wed Oct 09, 2019 3:16 pm
Why risk your life savings for 1%?
In many cases, people have no choice and are hoping for something better than 1%. And 1% real is better than 0% or negative real returns.

Jebediah
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

305pelusa wrote:
Wed Oct 09, 2019 3:24 pm

Since I'm not sure what the earnings growth for growth companies is (to determine their expected real return), I just look at value companies (whose earnings just meet inflation and their current E/P is a reasonable estimate) and assume growth companies will return something in the vicinity
I like it, seems totally reasonable.

HomerJ
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Wed Oct 09, 2019 1:44 pm
TomCat96 wrote:
Wed Oct 09, 2019 1:26 pm

I don't put any stock into market predictions like this, especially "market predictions for the next decade."
I don't care who it comes from, Bogle, Vanguard, Schiller, Fama, French, whoever...
Would you 'put stock into it' if we were at the end of the predicted period and it turned out to be right?

I only ask because it's 2 years since the prediction, and so far, Bogle was right. Despite the massive volatility since last fall, here we are, back where we started. How many years of him being right would convince you to 'put stock into it'? After all, we're 20% in already.
I can find you predictions from Bogle, Vanguard, Schiller, Fama, French, whoever that were made MORE than 2 years in the past, and turned out to be wrong.

Shiller himself, the guy who won the Nobel prize and invented CAPE, predicted 0% real 10-year returns in 1996.

10 years later, we instead had gotten like 6% real.

2011, I can show you ton of experts who predicted somewhat low 10-year U.S. returns, like 4.5% real. Instead, we've gotten like 12% real.

These predictions aren't just a little bit off.. They are ridiculously wrong.

CAPE has been high in the U.S. since 1992. And returns in 95% of ten-year periods since then have still been good. Sure 1999-2009, and 2000-2010 were terrible, but the rest of the ten year periods were decent-to-excellent.

Sure, the next 10 years might be bad... But it won't be because CAPE is a good predictive tool.

CAPE has failed for 25 out of the past 27 years... How many years of it being wrong would convince you NOT to "put stock in it"?
The J stands for Jay

visualguy
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

rich126 wrote:
Wed Oct 09, 2019 4:00 pm
owenmia wrote:
Wed Oct 09, 2019 3:16 pm
Why risk your life savings for 1%?
In many cases, people have no choice and are hoping for something better than 1%. And 1% real is better than 0% or negative real returns.
If I knew it was going to be just 1% real for the stock market, I would invest more in rental real estate. None of us really know, unfortunately, so all we can do is diversify and hope that at least one type of asset will do well-enough...

FIREchief
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

HomerJ wrote:
Wed Oct 09, 2019 4:59 pm
ukbogler wrote:
Wed Oct 09, 2019 1:44 pm
TomCat96 wrote:
Wed Oct 09, 2019 1:26 pm

I don't put any stock into market predictions like this, especially "market predictions for the next decade."
I don't care who it comes from, Bogle, Vanguard, Schiller, Fama, French, whoever...
Would you 'put stock into it' if we were at the end of the predicted period and it turned out to be right?

I only ask because it's 2 years since the prediction, and so far, Bogle was right. Despite the massive volatility since last fall, here we are, back where we started. How many years of him being right would convince you to 'put stock into it'? After all, we're 20% in already.
I can find you predictions from Bogle, Vanguard, Schiller, Fama, French, whoever that were made MORE than 2 years in the past, and turned out to be wrong.

Shiller himself, the guy who won the Nobel prize and invented CAPE, predicted 0% real 10-year returns in 1996.

10 years later, we instead had gotten like 6% real.

2011, I can show you ton of experts who predicted somewhat low 10-year U.S. returns, like 4.5% real. Instead, we've gotten like 12% real.

These predictions aren't just a little bit off.. They are ridiculously wrong.

CAPE has been high in the U.S. since 1992. And returns in 95% of ten-year periods since then have still been good. Sure 1999-2009, and 2000-2010 were terrible, but the rest of the ten year periods were decent-to-excellent.

Sure, the next 10 years might be bad... But it won't be because CAPE is a good predictive tool.
Thanks for the fun facts Homer.
CAPE has failed for 25 out of the past 27 years... How many years of it being wrong would convince you NOT to "put stock in it"?
Well, maybe it's due for a win!!
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Socal77
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Whatever the case hopefully my 20% international portion of equity improves my total return since it has been under-performing relative to domestic.

abuss368
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Thanks for sharing. It is entirely possible. Vanguard and Mr. Bogle have been advising for years to look for ways to save more because of possible lower returns in the future. Focus on living below your means and keep costs low. All items investors can impact.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

Hydromod
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

What is a win? I think you are bang on if the prediction for a 10-year period is within +/- 3 percent. You can't hope for much better.

SovereignInvestor
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

These predictions appear so so low and seem so punitive for stocks

First the buyback run rate is about 3.0% of market cap and has been last decade and buybacks and dividends are less than 100% of cash flow so its sustainable.

And even assuming 0.5%/year dilution that's 2.5% net buyback yield.

So if real dollars of earnings never grow for a decade not even, real EPS would grow 2.5%. Add on the 2.0% dividend yield and we have 4.5% real return. Only way to get to 1.0% is severe PE contraction...But

If valuations contract the buyback and dividend yields only rise which offsets much of impact of PE contraction.  And forward PE is 16.5...should we assume it goes to 11 and contracts 3% annually so S&P has a earnings yield of 9% (even though treasurys yield barely 1.5% now)?

The buyback plus dividend yield now is likely around 4.5% net...predicting 1% real returns means you think real EPS growth is negative 3.5% per year if PE doesn't contract? Or valuations also contract...but that helps earnings as it boosts yields.

What PE contract?  SPX forward PE IS about 16.5 now.  Seems reasonable with 10Y bonds at 1.5%.

In 1999 the S&P was at 25 forward PE and 10Y yield was 6%.  That had a lot of room for contraction. Bonds looked great and stocks poor.

When some mention slower growth real global GDP,  growth is projected at about 2.8% for globe per IMF longer run. US at 1.8% per Fed. S&P gets about half earnings overseas so relevant GDP growth is about 2.2% if you average them.

If total earnings dollars grow with relevant GDP at 2.2% real, then add on the 4.5% buyback and dividend yield and it would lead to 6.7% real returns absent PE contraction.  The growth number may be a bit high and margins may contract so earnings grow slower than GDP.  Mid single digits seems reasonable for mid point. The 1% is so low.

CAPE is deeply flawed.

1) It's not just because it uses 2009 data but that the Same EPS would be ~35% higher if in 2019 due to buybacks and CPI adjustment doesn't capture that.  But the buyback effect of allowing EPS to grow much faster than inflation only affects data post 2000 when buybacks really took off so the comparisons to long term CAPE miss this recent bias upward in CAPE.

2) Also, 8 of the 10 years in CAPE reflect 35% corporate tax rate when it's 21% which boosted EPS 10%.

3) The nature of the CPI changed in mid 1990s which led to smaller adjustments so this makes recent CAPE readings have smaller denominator as Old EPS is adjusted less leading to a bias up in CAPE.

4)  Even PE has an issue because it's relative to interest rates.

The 1% real forecasts suggest stocks are overvalued.  They appear incredibly cheap relative to.bonds

The fact is in 2000 when stocks were extremely unattractive relative to bonds,the S&P forward earnings yield was 4%, but one could gotten 6% in long Treasurys.  Stocks had a minus 2% earnings yield risk premium.

Now in october 2019, the long bond is yielding ~1.5% if you use 10Y note and S&P forward earnings yield is ~6.0% for a positive 4.5% earnings yield risk premium.

It changed a lot even from january 2018 when earnings yield was closer to 5.5% and 10Y yield was around 3% for a premium of stocks of just ~2.5%.

iamlucky13
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

This thread is parallel to numerous others that have looked at CAPE and forecast low returns for the next decade.

As far as I've gathered from the past discussions and the explanations from some of the less sensational sources (Vanguard white papers, Larry Swedroe, etc), this shouldn't really be taken as a forecast with much confidence.

Put simply, if CAPE is high, research suggests, that returns over the next decade will probably be low. Likewise, if CAPE is low, returns will probably, but not necessary be high.

But neither case can be taken as guaranteed. Exceptions do occur, and even when it is right, returns can take a volatile path to get where they're going.

So while a CAPE-based analysis might favor some equities categories like international, there's no guarantee it will pay off. And it won't tell you much about what other investment options might do, like bonds.

The main takeaway I see from all of these threads is simply that if any of your plans over the next decade depend on your equity returns, be very conservative.

gmaynardkrebs
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

My guess is that the returns will be a little better than 1%, but the downside is greater than the upside. I'm not selling stocks, but I'm not "buying the dips" either. Too much risk for too little reward.

willthrill81
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Bogleheads are definitely known to be a conservative bunch, but it seems like there is always a bit of a 'rush to the bottom' in terms of projected returns.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Hydromod
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

A couple of observations about the data I presented, which have nothing to do with CAPE. They are based on US stock allocation, which rationalizes predictions based on changes in price needed to meet allocation preferences. See the chart at https://financial-charts.effingapp.com/ for a time series (not mine).
HomerJ wrote:
Wed Oct 09, 2019 4:59 pm
I can find you predictions from Bogle, Vanguard, Schiller, Fama, French, whoever that were made MORE than 2 years in the past, and turned out to be wrong.

Shiller himself, the guy who won the Nobel prize and invented CAPE, predicted 0% real 10-year returns in 1996.

10 years later, we instead had gotten like 6% real.

The predicted returns were 8 to 9% nominal.

2011, I can show you ton of experts who predicted somewhat low 10-year U.S. returns, like 4.5% real. Instead, we've gotten like 12% real.

The predicted returns were 10 to 12% nominal at various parts of 2011, and we still have 1.25 years to go with likely fairly flat returns.

These predictions aren't just a little bit off.. They are ridiculously wrong.

CAPE has been high in the U.S. since 1992. And returns in 95% of ten-year periods since then have still been good. Sure 1999-2009, and 2000-2010 were terrible, but the rest of the ten year periods were decent-to-excellent.

Sure, the next 10 years might be bad... But it won't be because CAPE is a good predictive tool.

CAPE has failed for 25 out of the past 27 years... How many years of it being wrong would convince you NOT to "put stock in it"?
Of course things will likely be different in the future, and regressions based on past data can't be relied on for predictions, but the non-CAPE data do provide what appears to be fairly robust estimates of 1 percent +/- 4 percent. This does paint a paltry future decade.

SovereignInvestor
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

CAPE has been elevated since 1990s, because of buybacks.

The market doesn't care about CAPE, it cares about future earnings. Buybacks allow future EPS to be greater, much more than older years. IT's sort of like inflation...inflation also allows future earnings to be much more than older years....CAPE tries to adjust for that (IMO not fully with CPI changing over time), but it correctly tries to. But it doesn't adjust for buybacks which is a fatal flaw.

The gap between CAPE denominator for "Earnings" and forward earnings widens when there's buybacks. CAPE readings in presence of buybacks will run higher all else equal even if forward PE is the same.

CAPE takes last 10 years EPS and adjusts it to present for inflation. The inflation adjustment is flawed because CPI impact has been diminished over time, since mid 1990s, but that's another issue. Aside, there should also be another adjustment for share count reduction via buybacks, this would truly adjust last 10 years EPS to what they would look like if same earnings power occurred in future.

Shiller even acknowledges this when he added a new field to spreadsheet in 2017ish, that tries to adjust for buybacks by having a total return field. This doesn't correct the issue, but concedes there is an issue.

Buybacks bias it high, so comparing current readings to historical ones when there wasn't buybacks leads to junk conclusions. One gets poor results when they calibrate a model to predict the future, using historical data that has a different level than future. This is what happens with CAPE....and why people keep saying such ridiculously low returns.

TomCat96
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

visualguy wrote:
Wed Oct 09, 2019 5:03 pm
rich126 wrote:
Wed Oct 09, 2019 4:00 pm
owenmia wrote:
Wed Oct 09, 2019 3:16 pm
Why risk your life savings for 1%?
In many cases, people have no choice and are hoping for something better than 1%. And 1% real is better than 0% or negative real returns.
If I knew it was going to be just 1% real for the stock market, I would invest more in rental real estate. None of us really know, unfortunately, so all we can do is diversify and hope that at least one type of asset will do well-enough...

If it is decisive that we are going to get 1% real for the next decade, if we truly believed that with enough conviction to act upon it, strategize upon it, I would say boglehead philosophy would look very different.

First I probably would indeed put more money into real estate. Second, because the rewards would be so low, I would argue a major strategy would be to purchase ahead of time, possibly in real estate, any assets you desired to posses for the future.

After all, inflation is computed based on a basket of goods (toilet paper, food, utilities, education costs. etc). We know that such basket computation is a vast generalization of the economy at large, and has little to do with your expected future personal expenditures. I would invest in non-perishable assets today that I would expect to keep up with inflation to better ensure my needs for tomorrow.

In other words, it's not enough to beat a general CPI or PCE computation of inflation in stocks and say "all is well". If the margin of growth is so small, why chance it with respect to a generalized computation? Instead I might say, when I retire these are the assets I want to possess. I'll look at what it is I want and make it a priority to purchase those things ahead of time. Beating a generalized basket of goods wouldn't be my goal. Obtaining things very pertinent to my needs that will keep up with inflation would be my goal.

But as for the lack of certainty, it is for sure apparent that none of us can know what is going to happen in the future.
But I would argue this is where we are taking a chance.

We say we don't know, but the boglehead portfolio is designed with stocks as the central engine guiding the growth of our portfolios. If we knew with 100% certainty that stocks would grow at 1% real for the next decade, I would contend that stocks would not be the central engine of our portfolio growth---boglehead strategy itself would have to be reworked to possibly look like something I hypothesized above.

So many things would change. TIPS for instance would be competitive with stocks at a considerably lower volatility.
Stocks would not necessarily be the driving engine of the boglehead portfolio growth.
and finally, merely matching inflation would yield a return "competitive" with stockss.

A person who sits on a house and does nothing would not be far behind the stock investor who may have had to endure considerably more volatility.

Someone else said savings rates would be higher. I would be in complete agreement. Savings would play an ever larger role.
Moreover, it would demand and also incentivize investing in oneself more. Retirement would be arguably less of an option because one's present ability to generate wealth would be so important in a market place that did not adequately reward investing.

Finally, investments in general simply wouldn't be as useful.
That's an odd abstraction to think about, but...if the rewards aren't there why even bother with stocks? Why teach young people about stocks? Why even think about investing? It would cease to be an important question, as again, one can simply buy TIPs and be done with it. The rest of one's vitality should then and would then be spent on savings, and of course keeping one's personal income high.

TomCat96
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

As I wrote in my earlier posts,

I choose not to pay heed to predictions about the market. I don't care who it comes from.
These are ambiguous amorphous strands of thought that cannot be built upon. They are useful insofar as they provide an interesting talking point, but they are not substantial enough to plan around.

As I wrote before, if one can expect 1% real returns for the next decade, invest in TIPs instead. Invest in real estate instead.

I have approximately 25 years remaining on my investing horizon. A 1% real return each year compounded for the next 25 years results in a reward of 28.24% real at the end of the 25 years.

A reward of 28.24% for 25 years of investing is so low, that I just simply wouldn't invest...at all.
I would pour all of my income resources into bettering myself, so I could save more for the future. Arguably I wouldn't even be "behind" because time in market simply wouldnt matter as much.

I would time the market. We say "time in market" not timing the market. But if the upper bound of what you can hope for by "time in market" was 28.24% real after 25 years, I would time the market. If a market had a really good year, I would take my earnings and run, and invest in my education and/or real estate. Why bother with "time in market", we already knows the best I can do is 1% real a year, or 28% after 25 years.

I would eschew boglehead philosophy all together, and would take considerably more risks. People say you can't beat the market. Well, at 28% real over 25 years, I would take that chance.

And if I didn't match the market pace? Wouldn't matter. At 1% a year, I wouldn't be that far "behind"

So many things would change if we could use these so called predictions the same way I use information that tells me the bank is closed. If the bank is closed, I'm going to make a plan based on me not going to the bank. It's real, concrete information I create plans on. But before I enact all that I said I would, let me just say all of this is based on something not worth really giving any real credence to--a prediction and nothing more.
Last edited by TomCat96 on Wed Oct 09, 2019 8:28 pm, edited 1 time in total.

H-Town
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Wed Oct 09, 2019 3:34 am
This article is from a 'financial adviser' who advocates (among other things) a momentum strategy over 5 asset classes. Now while he claims to have found a simple way to ratchet returns upwards using that strategy, [OT comment removed -- mod oldcomputerguy], his article about the US markets seems more sensible to me (probably because he's built it on Bogle's work, which is why I mention it here).

If correct, the whole 'buy total US markets and hold' strategy is punxatawny'd big time for 10 years or more, and 'far better values are on offer overseas, where even developed countries like the UK and Singapore are priced for 6-9% nominal returns'. Anyone spot a problem here?

He follows it up in a more recent article here.

https://michaelritger.com/2019/05/20/us ... nd-beyond/
Well... Bogle's formula is either right or wrong. But at 1% real return, I would bet on it being wrong.

I have both U.S. and international, so I stop thinking about U.S. / international allocation many years ago.

Hydromod
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

What you are describing is a rational reaction to a zombie market (a term I just read today).

I think that we are really discussing a sideways decade, not a sideways lifetime. To a certain extent, I can believe that the long slide of interest rates will cast a longer pall on things.

For those that have a longer perspective, a sideways decade is a positive opportunity to accumulate at lower prices, as long as it is followed by a period of better returns. That's my positive spin...

Soon2BXProgrammer
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

HomerJ wrote:
Wed Oct 09, 2019 4:59 pm
2011, I can show you ton of experts who predicted somewhat low 10-year U.S. returns, like 4.5% real. Instead, we've gotten like 12% real.
we won't know if this prediction is true/false until 2021/2022 depending on the actual reference point being predicted.

EddyB
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Soon2BXProgrammer wrote:
Wed Oct 09, 2019 8:44 pm
HomerJ wrote:
Wed Oct 09, 2019 4:59 pm
2011, I can show you ton of experts who predicted somewhat low 10-year U.S. returns, like 4.5% real. Instead, we've gotten like 12% real.
we won't know if this prediction is true/false until 2021/2022 depending on the actual reference point being predicted.
But the OP was ready to argue that two years (which was actually not even that) proved Bogle right (although the OP’s claims about returns over even that period were absolutely false).

gmaynardkrebs
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Hydromod wrote:
Wed Oct 09, 2019 8:32 pm
What you are describing is a rational reaction to a zombie market (a term I just read today).

I think that we are really discussing a sideways decade, not a sideways lifetime. To a certain extent, I can believe that the long slide of interest rates will cast a longer pall on things.

For those that have a longer perspective, a sideways decade is a positive opportunity to accumulate at lower prices, as long as it is followed by a period of better returns. That's my positive spin...
Sounds like a little whistling in the dark there, but that’s OK. But, my feeling is that BHers as a whole have too much positivity and not enough skepticism. There are lots of ways to invest, and just because stock investing is so easy, that doesn’t mean it’s the best way. I am definitely looking at alternatives with a better risk/reward ratio. Real estate is certainly one that’s been mentioned, but there have been quite a few other good suggestions on this board as well. Personally, I haven’t decided yet, but the idea that stocks are going to provide this bonanza strikes me as pretty far-fetched at this point. There is simply too many other things that point to sub par, if not negative return for equities. I wish less time were devoted here to “stay the course“ and more time devoted to “thinking outside the box,“ if you’ll forgive the cliché. Time for some new paradigms. Nothing lass forever, not even “stay the course.”

visualguy
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### Re: John Bogle’s formula says 1% real stock returns likely over next decade

gmaynardkrebs wrote:
Wed Oct 09, 2019 8:55 pm
Hydromod wrote:
Wed Oct 09, 2019 8:32 pm
What you are describing is a rational reaction to a zombie market (a term I just read today).

I think that we are really discussing a sideways decade, not a sideways lifetime. To a certain extent, I can believe that the long slide of interest rates will cast a longer pall on things.

For those that have a longer perspective, a sideways decade is a positive opportunity to accumulate at lower prices, as long as it is followed by a period of better returns. That's my positive spin...
Sounds like a little whistling in the dark there, but that’s OK. But, my feeling is that BHers as a whole have too much positivity and not enough skepticism. There are lots of ways to invest, and just because stock investing is so easy, that doesn’t mean it’s the best way. I am definitely looking at alternatives with a better risk/reward ratio. Real estate is certainly one that’s been mentioned, but there have been quite a few other good suggestions on this board as well. Personally, I haven’t decided yet, but the idea that stocks are going to provide this bonanza strikes me as pretty far-fetched at this point. There is simply too many other things that point to sub par, if not negative return for equities. I wish less time were devoted here to “stay the course“ and more time devoted to “thinking outside the box,“ if you’ll forgive the cliché. Time for some new paradigms. Nothing lass forever, not even “stay the course.”
Right, particularly since we've seen bad long-term stock market behavior outside the US, and the US has been pretty exceptional in how it kept resuming good returns after not crazy long. There's no reason to be convinced that something similar to what we've seen in Europe or post-bubble Japan, for example, won't happen in the US. I personally think that going 50%/50% stock and direct real estate is a reasonable approach (not counting cash-like assets).

firebirdparts
Posts: 1148
Joined: Thu Jun 13, 2019 4:21 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

TomCat96 wrote:
Wed Oct 09, 2019 2:11 pm

No no no.
Let's focus on one thing and ONE THING ONLY.

The stock market is going to grow at 1% real a year for the next decade.

What are you going to do with that?
The first thing I am going to do is NOT imagine this happening 1% a year for 10 years. It would require some unprecedented change that we can't even imagine to reduce volatility to that level. That is not what this will be like. They're really talking about 50% nominal growth and a sudden 30% nominal drop at a time TBD.
A fool and your money are soon partners

AlohaJoe
Posts: 5249
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Wed Oct 09, 2019 8:46 am
JoMoney wrote:
Wed Oct 09, 2019 8:37 am
(Not that CAPE even matters for the formula calculation)
As I understand his reasoning, he uses CAPE because he's trying to extrapolate a decade into the future. Extrapolating 10 years using a single previous year's P/E is kind of brave. Hence use the CAPE because it's an average that reveals the trend.
This simply isn't true. Using the previous year's PE has a r^2 of 0.38. Using CAPE10 has an r^2 of 0.43.

Using the previous year's P/E isn't "kind of brave" it is only very marginally worse than using CAPE10. And both are bad. Switching to CAPE10 isn't some massive, magic improvement over just using the previous year's P/E and it isn't really more likely to show any trends.

gmaynardkrebs
Posts: 2007
Joined: Sun Feb 10, 2008 11:48 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

AlohaJoe wrote:
Wed Oct 09, 2019 9:54 pm
ukbogler wrote:
Wed Oct 09, 2019 8:46 am
JoMoney wrote:
Wed Oct 09, 2019 8:37 am
(Not that CAPE even matters for the formula calculation)
As I understand his reasoning, he uses CAPE because he's trying to extrapolate a decade into the future. Extrapolating 10 years using a single previous year's P/E is kind of brave. Hence use the CAPE because it's an average that reveals the trend.
This simply isn't true. Using the previous year's PE has a r^2 of 0.38. Using CAPE10 has an r^2 of 0.43.

Using the previous year's P/E isn't "kind of brave" it is only very marginally worse than using CAPE10. And both are bad. Switching to CAPE10 isn't some massive, magic improvement over just using the previous year's P/E and it isn't really more likely to show any trends.
.43 is actually pretty good.

SovereignInvestor
Posts: 569
Joined: Mon Aug 20, 2018 4:41 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

gmaynardkrebs wrote:
Wed Oct 09, 2019 9:57 pm
AlohaJoe wrote:
Wed Oct 09, 2019 9:54 pm
ukbogler wrote:
Wed Oct 09, 2019 8:46 am
JoMoney wrote:
Wed Oct 09, 2019 8:37 am
(Not that CAPE even matters for the formula calculation)
As I understand his reasoning, he uses CAPE because he's trying to extrapolate a decade into the future. Extrapolating 10 years using a single previous year's P/E is kind of brave. Hence use the CAPE because it's an average that reveals the trend.
This simply isn't true. Using the previous year's PE has a r^2 of 0.38. Using CAPE10 has an r^2 of 0.43.

Using the previous year's P/E isn't "kind of brave" it is only very marginally worse than using CAPE10. And both are bad. Switching to CAPE10 isn't some massive, magic improvement over just using the previous year's P/E and it isn't really more likely to show any trends.
.43 is actually pretty good.
But the last 2 decades have CAPE underestimating returns. When there is a structure like that in the residuals, the model is missing something...that something is the CAPE bias.

gmaynardkrebs
Posts: 2007
Joined: Sun Feb 10, 2008 11:48 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

SovereignInvestor wrote:
Wed Oct 09, 2019 10:10 pm
gmaynardkrebs wrote:
Wed Oct 09, 2019 9:57 pm
AlohaJoe wrote:
Wed Oct 09, 2019 9:54 pm
ukbogler wrote:
Wed Oct 09, 2019 8:46 am
JoMoney wrote:
Wed Oct 09, 2019 8:37 am
(Not that CAPE even matters for the formula calculation)
As I understand his reasoning, he uses CAPE because he's trying to extrapolate a decade into the future. Extrapolating 10 years using a single previous year's P/E is kind of brave. Hence use the CAPE because it's an average that reveals the trend.
This simply isn't true. Using the previous year's PE has a r^2 of 0.38. Using CAPE10 has an r^2 of 0.43.

Using the previous year's P/E isn't "kind of brave" it is only very marginally worse than using CAPE10. And both are bad. Switching to CAPE10 isn't some massive, magic improvement over just using the previous year's P/E and it isn't really more likely to show any trends.
.43 is actually pretty good.
But the last 2 decades have CAPE underestimating returns. When there is a structure like that in the residuals, the model is missing something...that something is the CAPE bias.
What is the "bias" to which you refer? Five heads in a row are not proof of a "biased" coin.

Hydromod
Posts: 381
Joined: Tue Mar 26, 2019 10:21 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

SovereignInvestor wrote:
Wed Oct 09, 2019 10:10 pm
gmaynardkrebs wrote:
Wed Oct 09, 2019 9:57 pm
AlohaJoe wrote:
Wed Oct 09, 2019 9:54 pm
ukbogler wrote:
Wed Oct 09, 2019 8:46 am
JoMoney wrote:
Wed Oct 09, 2019 8:37 am
(Not that CAPE even matters for the formula calculation)
As I understand his reasoning, he uses CAPE because he's trying to extrapolate a decade into the future. Extrapolating 10 years using a single previous year's P/E is kind of brave. Hence use the CAPE because it's an average that reveals the trend.
This simply isn't true. Using the previous year's PE has a r^2 of 0.38. Using CAPE10 has an r^2 of 0.43.

Using the previous year's P/E isn't "kind of brave" it is only very marginally worse than using CAPE10. And both are bad. Switching to CAPE10 isn't some massive, magic improvement over just using the previous year's P/E and it isn't really more likely to show any trends.
.43 is actually pretty good.
But the last 2 decades have CAPE underestimating returns. When there is a structure like that in the residuals, the model is missing something...that something is the CAPE bias.
The US stock method shows an r^2 of 0.91 for ten years.

JBTX
Posts: 5992
Joined: Wed Jul 26, 2017 12:46 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Jags4186 wrote:
Wed Oct 09, 2019 1:00 pm
I simply have a hunch that returns will be good for the next 10 years or so. I have no math to back this up. But you need to ask yourself if you think that on 12/31/2029 we will have just completed the *worst* 30 year period in US equity performance. Not a bad one, not a not so great one, but the absolute worst. Because unless we continue to have great returns for the next 10 years, that is what we will have just gone through.
Given the starting point was a historically high valuations, it seems very plausible that the 30 year return could be among the worst.

JoMoney
Posts: 8761
Joined: Tue Jul 23, 2013 5:31 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

JBTX wrote:
Wed Oct 09, 2019 10:46 pm
Jags4186 wrote:
Wed Oct 09, 2019 1:00 pm
I simply have a hunch that returns will be good for the next 10 years or so. I have no math to back this up. But you need to ask yourself if you think that on 12/31/2029 we will have just completed the *worst* 30 year period in US equity performance. Not a bad one, not a not so great one, but the absolute worst. Because unless we continue to have great returns for the next 10 years, that is what we will have just gone through.
Given the starting point was a historically high valuations, it seems very plausible that the 30 year return could be among the worst.
Looking at inflation adjusted returns since 1925, worst 30 year periods (glancing at annual data) were all over 4% real.
.. 4.3% real, inflation adjusted total return from 12/31/1964 - 12/31/1994

We're at about 3.8% real annualized return over the past 19.75 years since 12/31/1999
If returns don't pick up from here, we'll see the worst 30 year period on record for the 1999-2029 period.

MStar chart
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Topic Author
ukbogler
Posts: 181
Joined: Mon Sep 30, 2019 4:38 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant'

It looks like a fairly useful correlation to me...

usagi
Posts: 260
Joined: Wed Jun 05, 2019 1:08 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

It seems to me the prudent thing to do, if you believe in 1%, is switch to a dividend strategy: A porfolio heavily invested in consumer staple companies that have a demonstrated ability to turn a profit without growth. They would likely strive to reduce expenses to increase profitability and share price (so the execs and BOD can continue with their ridiculous compensation).That would be a good place to hang out until growth became a factor again. It is the flip side of the total return argument.

They would likely strive to reduce expenses to increase profitability and share price (so the execs and BOD can continue with their ridiculous compensation). He clearly saw a difference in the approaches and advantages in each at different periods of time and life.

The winner in this in terms of an etf vs individual stock selections is Fido's FSTA with its .08% ER and 2.55 yield. Runner ups are Vanguard's VDC with a .10% ER and 2.52% yield and a very interesting entry by ishares in IECS which is an active AI driven proprietary selection system with a .018% ER and 2.55 yield.
Last edited by usagi on Thu Oct 10, 2019 8:52 am, edited 1 time in total.

Topic Author
ukbogler
Posts: 181
Joined: Mon Sep 30, 2019 4:38 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

usagi wrote:
Thu Oct 10, 2019 2:42 am
It seems to me the prudent thing to do, if you believe in 1%, is switch to a dividend strategy: A porfolio heavily invested in consumer staple companies that have a demonstrated ability to turn a profit without growth. They would likely strive to reduce expenses to increase profitability and share price (so the execs and BOD can continue with their ridiculous compensation).That would be a good place to hand out until growth became a factor again. It is the flip side of the total return argument.

They would likely strive to reduce expenses to increase profitability and share price (so the execs and BOD can continue with their ridiculous compensation). He clearly saw a difference in the approaches and advantages in each at different periods of time and life.

The winner in this in terms of an etf vs individual stock selections is Fido's FSTA with its .08% ER and 2.55 yield. Runner ups are Vanguard's VDC with a .10% ER and 2.52% yield and a very interesting entry by ishares in IECS which is an active AI driven proprietary selection system with a .018% ER and 2.55 yield.
Now THAT I like!

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Whenever people look at future return scenarios, the consensus seems to be that future returns will be lower. I have yet to see lots of predictions that it will be higher.

My question is, why? Why would we expect the future to be different than the past? I know we often say the past does not indicate the future, it then I also question, we’ll, why do we think it’ll be radically different?

Has people’s risk profile changed? Are they will to take more risk for lower reward? Has the risk gap between various classes of investments closed up some? Has the nature of investments, risk and reward changed? I just don’t think it has. While future returns may be lower (or higher) than the past, I don’t see what the fundamental shift has been that requires them to be lower. I may be looking at this too simplistically, but I just don’t know why we shouldn’t expect returns to be consistent with the past, something like 9% nominal +/- 4% (someone will do the match, I haven’t).

Has your willingness to take risk dramatically increased to the point you will gladly except lower returns on broad equities? Why?

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

usagi wrote:
Thu Oct 10, 2019 2:42 am
It seems to me the prudent thing to do, if you believe in 1%, is switch to a dividend strategy: A porfolio heavily invested in consumer staple companies that have a demonstrated ability to turn a profit without growth. They would likely strive to reduce expenses to increase profitability and share price (so the execs and BOD can continue with their ridiculous compensation).That would be a good place to hand out until growth became a factor again. It is the flip side of the total return argument.

They would likely strive to reduce expenses to increase profitability and share price (so the execs and BOD can continue with their ridiculous compensation). He clearly saw a difference in the approaches and advantages in each at different periods of time and life.

The winner in this in terms of an etf vs individual stock selections is Fido's FSTA with its .08% ER and 2.55 yield. Runner ups are Vanguard's VDC with a .10% ER and 2.52% yield and a very interesting entry by ishares in IECS which is an active AI driven proprietary selection system with a .018% ER and 2.55 yield.
Ridiculous compensation? So, if the CEO and BOD deliver above market total shareholder returns, aren’t they entitled to their “ridiculous compensation?”

Topic Author
ukbogler
Posts: 181
Joined: Mon Sep 30, 2019 4:38 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Bacchus01 wrote:
Thu Oct 10, 2019 5:38 am
Whenever people look at future return scenarios, the consensus seems to be that future returns will be lower. I have yet to see lots of predictions that it will be higher.

My question is, why?
have a look at that picture I posted up above. People are expecting future returns to be lower because of where we are today.

SovereignInvestor
Posts: 569
Joined: Mon Aug 20, 2018 4:41 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

gmaynardkrebs wrote:
Wed Oct 09, 2019 10:21 pm
SovereignInvestor wrote:
Wed Oct 09, 2019 10:10 pm
gmaynardkrebs wrote:
Wed Oct 09, 2019 9:57 pm
AlohaJoe wrote:
Wed Oct 09, 2019 9:54 pm
ukbogler wrote:
Wed Oct 09, 2019 8:46 am

As I understand his reasoning, he uses CAPE because he's trying to extrapolate a decade into the future. Extrapolating 10 years using a single previous year's P/E is kind of brave. Hence use the CAPE because it's an average that reveals the trend.
This simply isn't true. Using the previous year's PE has a r^2 of 0.38. Using CAPE10 has an r^2 of 0.43.

Using the previous year's P/E isn't "kind of brave" it is only very marginally worse than using CAPE10. And both are bad. Switching to CAPE10 isn't some massive, magic improvement over just using the previous year's P/E and it isn't really more likely to show any trends.
.43 is actually pretty good.
But the last 2 decades have CAPE underestimating returns. When there is a structure like that in the residuals, the model is missing something...that something is the CAPE bias.
What is the "bias" to which you refer? Five heads in a row are not proof of a "biased" coin.
I posted above a couple posts about it.

It is biased high because

1) Buybacks elevate it relative to no buybacks and 2000 to present has massive buybacks yet current expected returns are calibrated using data well before 2000.

2) Corporate tax rate is lower now than last 8 years of CAPE...so it understates ear ings power

3) CPI has changed in mid 1990s leading to less adjustment so CAPE post 1990s will see older year earnings adjust ed by smaller inflation factor which leads to larger CAPE.

These are purely data biases. That lead to overstated CAPE currently RELATIVE to history if the same data existed in say 1970.

Basically there is a correlation between CAPE and market returns but the current midpoints projected will be too low because CAPE is elevated now for data reasons.

If current CAPE is 40 instead of 30, it will have lower returns at 40 than 30. Yes I'm not denying some correlation. But 40 CAPE is different from 40 CAPE in say 1970 when these biases didn't present.
Last edited by SovereignInvestor on Thu Oct 10, 2019 6:24 am, edited 1 time in total.

Jags4186
Posts: 4440
Joined: Wed Jun 18, 2014 7:12 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

JoMoney wrote:
Thu Oct 10, 2019 1:04 am
JBTX wrote:
Wed Oct 09, 2019 10:46 pm
Jags4186 wrote:
Wed Oct 09, 2019 1:00 pm
I simply have a hunch that returns will be good for the next 10 years or so. I have no math to back this up. But you need to ask yourself if you think that on 12/31/2029 we will have just completed the *worst* 30 year period in US equity performance. Not a bad one, not a not so great one, but the absolute worst. Because unless we continue to have great returns for the next 10 years, that is what we will have just gone through.
Given the starting point was a historically high valuations, it seems very plausible that the 30 year return could be among the worst.
Looking at inflation adjusted returns since 1925, worst 30 year periods (glancing at annual data) were all over 4% real.
.. 4.3% real, inflation adjusted total return from 12/31/1964 - 12/31/1994

We're at about 3.8% real annualized return over the past 19.75 years since 12/31/1999
If returns don't pick up from here, we'll see the worst 30 year period on record for the 1999-2029 period.

MStar chart
Just a slight quibble, the 30 year period would be 2000 - 2029, not 1999 to 2029.

SovereignInvestor
Posts: 569
Joined: Mon Aug 20, 2018 4:41 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Thu Oct 10, 2019 2:20 am
I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant'

It looks like a fairly useful correlation to me...
As one of the staunchest CAPE opponents who has written about its flaws not adjusting for buyback bias before Shiller acknowledged it himself..I admit yes there is a correlation.

A higher present CAPE will mean lower returns relative to a lower CAPE.

The issue is the level of forward returns predicted IMO is biased low because the level is calibrated based on historical data when CAPE would be bias lower than it is now.

As mentioned due to buybacks CPI changes and corporate tax cut 2019 CAPE will be higher than if same circumstances existed in say 1970.

So when model says 1% return now..that is biased low. It perhaps should be showing say 4% or something higher (4% is made up, I personally believe 5-6% is reasonable but for other reasons).

But yes if CAPE was 10 pts higher then the return should be lower...some here would see the 1% forecast go to minus 2%, where if I am using a 4% then I may see it go to 1%. We both agree with correlation...but the models used here IMO have a low bias of returns because CAPE EPS, the denominator of CAPE are too low relative to forward earnings power. This gap has widened because of factors I mentioned.

Even though there is a correlation I still think it's dangerous because a bias is an issue. Saying 1% forecasted real return when I believe it should be several points higher is an issue..because 1% suggests stocks are unattractive but a 4% or higher number says the opposite.

We can see it in chart...in year 2000 the forward 15 year returns were much higher than in 1965 despite 2000 habung a much higher CAPE than 1965. Similar story for years after 2000 versus 1970s. 2000s had higher CAPE but higher returns than 1970s.

lazyday
Posts: 3794
Joined: Wed Mar 14, 2007 10:27 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

So many posts in this thread equate "stocks" with "US stocks".

If you just own the global market then things don't look so bad.

petulant
Posts: 1057
Joined: Thu Sep 22, 2016 1:09 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Thu Oct 10, 2019 2:20 am
I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant'

It looks like a fairly useful correlation to me...
Obviously valuation matters but accounting standards have changed in the last 30 years. At this point you're just ignoring what people have told you, or you're not bothering to do additional research. Current CAPE is clouded by one-time charges around the financial crisis. One-time charges simply don't impact future earnings; if anything, the fact of a one-time charge and a big loss makes future earnings more likely because toxic assets can't drag accounting earnings anymore.

Here is more information on accounting changes:
https://www.philosophicaleconomics.com/2013/12/shiller/
https://internationalfinance.com/jeremy ... -big-bias/
https://aswathdamodaran.blogspot.com/20 ... pe-it.html

gmaynardkrebs
Posts: 2007
Joined: Sun Feb 10, 2008 11:48 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

lazyday wrote:
Thu Oct 10, 2019 6:29 am
So many posts in this thread equate "stocks" with "US stocks".

If you just own the global market then things don't look so bad.
Yeah, but then people here wouldn't be bragging and patting themselves on the back so vigorously about how much much money they've made in "stocks."

visualguy
Posts: 1809
Joined: Thu Jan 30, 2014 1:32 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Thu Oct 10, 2019 5:49 am
Bacchus01 wrote:
Thu Oct 10, 2019 5:38 am
Whenever people look at future return scenarios, the consensus seems to be that future returns will be lower. I have yet to see lots of predictions that it will be higher.

My question is, why?
have a look at that picture I posted up above. People are expecting future returns to be lower because of where we are today.
Right, plus expectations of lower economic growth, particularly in the developed economies.

Topic Author
ukbogler
Posts: 181
Joined: Mon Sep 30, 2019 4:38 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

[Comments removed by moderator oldcomputerguy]

The predicted growth is composed of three factors.

1. Dividends
2. Earnings growth
3. P/E multiple speculation.

The first, dividends, is a matter of historical record, and has been low and stable for some time. If you think dividends are suddenly going to explode past 2%, feel free to explain why.

The second is a fairly steady trend, and the example just used it. If you think earnings growth will accelerate going forwards, when we're already getting warning shots about the coming quarter, and the rest of the world is clearly slowing down, well... OK, reasons why we'll see that please. Perhaps you know of some new paradigm shifting tech or something.

The third doesn't have to relate to CAPE at all. Simply explain why you think even higher P/E ratios are coming from their already lofty perch, and why, including why you just abolished reversion to the mean.

That's all you need to plug into the equation. The point is simple; Bogle used what he decided were the most sensible inputs into the EQ, giving what's most likely to happen in his opinion. His call has been confirmed since start of Jan 2018, so your new inputs should be able to do better - predict the 2018 onwards stagnation stretch, plus what happens going forward from now, last q 2019. Listening carefully

EddyB
Posts: 1253
Joined: Fri May 24, 2013 3:43 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

ukbogler wrote:
Thu Oct 10, 2019 8:49 am
His call has been confirmed since start of Jan 2018, so your new inputs should be able to do better - predict the 2018 onwards stagnation stretch, plus what happens going forward from now, last q 2019. Listening carefully
Regardless of whether such a short period could mean much, from January 2018 to last month (adjusted for CPI), the annualized return was 2.4%, or 4.1% with dividends reinvested. Why do you keep claiming his call “has been confirmed” even over that brief period?

usagi
Posts: 260
Joined: Wed Jun 05, 2019 1:08 am

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Bacchus01 wrote:
Thu Oct 10, 2019 5:38 am

My question is, why? Why would we expect the future to be different than the past? I know we often say the past does not indicate the future, it then I also question, we’ll, why do we think it’ll be radically different?
Among other things, I am a small businessman. Specifically one area I have an pecuniary and passion for is the formation and operation of small businesses. After years of successful start-up and operation of a number of small businesses of mine own in several different industries I began a consultancy practice. My personal experience now spans some 38 years. I am passionate about capitalism, even in our mixed economy, and believe it has done more to elevate the human condition than any other system, With all that being said as a prelude, I leave you with the substance of my comment (I am trying hard not to be political so I shall attempt to stick to facts):

Over the past 3 administrations there has been a fundamental shift in the relationship between government, business, the size of business and the administrative state, Call it a wide vacillation. The shift was profound to the point where it directly impacted small business entrepreneurial risk taking. At the same we saw large businesses using the mechanism of government as a cudgel against their competition.

Combine the above with the fact we are no longer the sole standing industrialized base, the European based societies demographic shifts, the developed countries government pensions crisis, government debt levels and I would say, in the short to intermediate term we have entered uncharted waters. And IMO, a whole lot will depend on the outcome of certain events unfolding over the next few years, in terms of setting a direction that business can plan around.

I have great faith in the long term, 30 years plus of things to cycle through, but that is more than the typical investors timeline and the topic is about the next decade.

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

usagi wrote:
Thu Oct 10, 2019 9:29 am
Bacchus01 wrote:
Thu Oct 10, 2019 5:38 am

My question is, why? Why would we expect the future to be different than the past? I know we often say the past does not indicate the future, it then I also question, we’ll, why do we think it’ll be radically different?
Among other things, I am a small businessman. Specifically one area I have an pecuniary and passion for is the formation and operation of small businesses. After years of successful start-up and operation of a number of small businesses of mine own in several different industries I began a consultancy practice. My personal experience now spans some 38 years. I am passionate about capitalism, even in our mixed economy, and believe it has done more to elevate the human condition than any other system, With all that being said as a prelude, I leave you with the substance of my comment (I am trying hard not to be political so I shall attempt to stick to facts):

Over the past 3 administrations there has been a fundamental shift in the relationship between government, business, the size of business and the administrative state, Call it a wide vacillation. The shift was profound to the point where it directly impacted small business entrepreneurial risk taking. At the same we saw large businesses using the mechanism of government as a cudgel against their competition.

Combine the above with the fact we are no longer the sole standing industrialized base, the European based societies demographic shifts, the developed countries government pensions crisis, government debt levels and I would say, in the short to intermediate term we have entered uncharted waters. And IMO, a whole lot will depend on the outcome of certain events unfolding over the next few years, in terms of setting a direction that business can plan around.

I have great faith in the long term, 30 years plus of things to cycle through, but that is more than the typical investors timeline and the topic is about the next decade.
I understand the dynamics of the markets, growth, etc. but fundamentally the value of an equity or basic of equities is a factor of the return and the risk one is willing to take to get that return. Has the risk profile of people and large holders actually changed? Am I will to take on equal or more risk for less return over a lower-risk/lower-return option? Why is the spread between lower risk and higher risk options going to dramatically decrease? Why will people be willing to take on equal or higher risk for lower returns? Unless the argument is "well, that's all you're going to get..." I'm not sure how that was any different over any of the 100+ years back. Why will risk profiles change?

firebirdparts
Posts: 1148
Joined: Thu Jun 13, 2019 4:21 pm

### Re: John Bogle’s formula says 1% real stock returns likely over next decade

Jags4186 wrote:
Wed Oct 09, 2019 1:00 pm
I simply have a hunch that returns will be good for the next 10 years or so. I have no math to back this up. But you need to ask yourself if you think that on 12/31/2029 we will have just completed the *worst* 30 year period in US equity performance. Not a bad one, not a not so great one, but the absolute worst. Because unless we continue to have great returns for the next 10 years, that is what we will have just gone through.
Isn't that just cherry picking the start point though? No offense. I certainly am not going to defend CAPE or anybody's crystal ball. I am willing to bet stocks go up and down and just be satisfied with that.

I took 2 minutes and looked for the highest 30 year returns ever and I get 1969 to 1999. I was using some data set that started in 1926. So to further waste our time, would anybody expect the best 30 year returns to be followed right then immediately by the lowest 30 years? That's not totally stupid. My 5 minute analysis anyway.
Last edited by firebirdparts on Thu Oct 10, 2019 10:09 am, edited 1 time in total.
A fool and your money are soon partners