Equity return?

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Jan 10, 2009 1:10 pm

What kind of return do you think is realistic for equities? There's always been this number out there that stocks have grown 10 percent over time, but 1) is that really true, and 2) is that really sustainable. .... If the Dow has grown 10 percent over time, isn't that a measure of the succesful companies and not the ones that disappeared. And if the economy grows at 3 percent and dividends yield is 2 or 3 percent, wouldn't a 10 percent return just be a bubble waiting to pop (like now.) And if the market really does grow at 10 percent, how does that justify PE ratios of 20 or above.


Bah, just wondering if the idea that our net worth should double every seven years hasn't been a Ponzi-style delusion.
 
 
Jan 10, 2009 2:30 pm
buyandhold:

What kind of return do you think is realistic for equities? There's always been this number out there that stocks have grown 10 percent over time, but 1) is that really true, and 2) is that really sustainable. .... If the Dow has grown 10 percent over time, isn't that a measure of the succesful companies and not the ones that disappeared. And if the economy grows at 3 percent and dividends yield is 2 or 3 percent, wouldn't a 10 percent return just be a bubble waiting to pop (like now.) And if the market really does grow at 10 percent, how does that justify PE ratios of 20 or above.


Bah, just wondering if the idea that our net worth should double every seven years hasn't been a Ponzi-style delusion.
 
 
 
Long term historical avg is in the mid 8% range.  GDP+Divs+Inflation.  You are forgetting about inflation in your calculation.  However the market does not go up 8% in a straight line.  With this bear market (actually the last 10 years) should lead to above avg growth for the next decade.  Buy equities now.
Jan 10, 2009 3:27 pm

I think a good return would be based on double the rate of the 3-5yr CD rates at the bank.. I think historical averages are great but unrealistic for year to year basis..

Jan 10, 2009 9:21 pm
Sam Houston:
buyandhold:

What kind of return do you think is realistic for equities? There's always been this number out there that stocks have grown 10 percent over time, but 1) is that really true, and 2) is that really sustainable. .... If the Dow has grown 10 percent over time, isn't that a measure of the succesful companies and not the ones that disappeared. And if the economy grows at 3 percent and dividends yield is 2 or 3 percent, wouldn't a 10 percent return just be a bubble waiting to pop (like now.) And if the market really does grow at 10 percent, how does that justify PE ratios of 20 or above.


Bah, just wondering if the idea that our net worth should double every seven years hasn't been a Ponzi-style delusion.
 
 
 
Long term historical avg is in the mid 8% range.  GDP+Divs+Inflation.  You are forgetting about inflation in your calculation.  However the market does not go up 8% in a straight line.  With this bear market (actually the last 10 years) should lead to above avg growth for the next decade.  Buy equities now.
 
would argue that because of what has happened you will see below average growth for a LONG TIME.  Baby boomer generation starting to retire in 2012 and that will start a move of money leaving stocks for 10-20 years..and think the new generation does not have the wealth that the prior one did.  Dividends have been cut by most in history, 81 out of 500 in the S&P 500 have cut dividends last 3 months, see that list getting bigger.  Not a big believer in Mutual Funds, but would say fund like Fid Magellan will not hit its high water mark for at least 10-15 years.
Jan 10, 2009 10:18 pm

Most of the members of the Barrons Roundtable, in this weeks issue, agree with you - low growth for a long time, buy gold silver platinum, hyper inflation coming.

Jan 10, 2009 10:26 pm
Sportsfreakbob:

Most of the members of the Barrons Roundtable, in this weeks issue, agree with you - low growth for a long time, buy gold silver platinum, hyper inflation coming.

 
Tend to agree with you, if/when that trend starts to show it could be a big one.  I think anyone who is telling clients that we are at "Screaming buy," "next 10 years going to be great," "If you get out of the market and miss the 5 biggest up days you will effect your returns," blah blah is either a liar or does not get it (or is a fund wholesaler)..Always opportunity somewhere, just have to find it.
Jan 10, 2009 11:05 pm

..Always opportunity somewhere, just have to find it.

Yeah, there's an ETF that lets you buy Sudan, maybe thats it.

Jan 11, 2009 12:31 am

The market always moves in the direction that causes the most consternation for the most players....

Jan 11, 2009 1:03 am
HymanRoth:

The market always moves in the direction that causes the most consternation for the most players....



Which probably means its about to rally big time.

Jan 12, 2009 4:16 pm

I hope you kept that paper to show your clients and let mom wrap the decorations in one that was from this year.  Every 30 years you could go get the wrapping and remind your clients about past markets.