Tuesday, August 30, 2016

Two More Powerful Examples of Low Expected Stock Returns: LOOK OUT.

This will be a short post but I cannot help but share this with you:

1) Chris Brigthman, Chief Investment Officer of Research Affiliates (no small feat to achieve that particular position at that company), stated recently that over the next decade a 60% large US stock/40% US bond portfolio is expect to return just 4.3% annually, and only 1.3% after inflation! That is crazy low returns.  Investor, take heed.

2) From the WSJ recently, Robert Shiller's cyclically adjusted price/earnings ratio (known as the CAPE ratio) stands at 27.1.  It's long term average is 16.  SIXTEEN.  Crazy high currently. Note the following, and definitely take heed: "today's valuation falls into the top tenth of historical observations, since data from the 1880s. When CAPE is in the top decile, as it is now, the S&P 500 subsequently averages about 4% annually for the next 10 years."

What do you think will happen? I personally only believe there are small pockets of value left.  Otherwise, the only solution is to hold cash, or switch to real estate!

Passive Income Dude


  1. Very interesting -- thanks for sharing... I find it increasingly hard to find dividend growth stocks selling at a discount to fair value. The problem with real estate is that we're back to levels prior to the big real estate bust in 2008. At least on here in the Bay Area.

    1. I hear you on the difficulty finding good stocks at good prices. I recently added to WFC. Got in at $48.5...think the bank stocks have potential to do well. At least in the very short term that has proved true.

      And you're right about real estate, but that's not the case in every market. In some of the more linear market, I still think you can have much better returns than in equities. I'd stay away from Bay Area purchase though, makes more sense to rent there.

  2. Replies
    1. Thanks TDM! Appreciate you stopping by. Interesting times ahead!