It has been some time since we have looked at stock market valuations and expected future returns. I made a large point in Bull's Eye Investing that long term returns are closely correlated with the valuation of the stock market upon entry. In fact, I argue that secular bull and bear markets should be viewed in terms of valuation and not prices. The market clearly goes from high valuations to low and back to high again over very long periods of time. The average length of a secular bull or bear cycle is 17 years.
Based on valuations, we are still in a secular bear market. But clearly we are in a bull phase, which within long term secular bear cycles are quite normal. They make for good trading opportunities. But should you invest now with a view to holding for 10-20 years?
This week's Outside the Box from my friend Prieur du Plessis of Plexus Asset Managment looks at what long term return expectations might be from today's stock market valuations. He offers us a range of expectations which I think should help you in your investment decision making process.
Dr Prieur du Plessis is chairman of Cape Town-based Plexus Asset Management and author of the Investment Postcards from Cape Town blog: http://www.investmentpostcards.com (Subscribe to e-mail updates of new articles by clicking on "Subscribe to Updates" in the top right-hand corner of the blog site and providing an e-mail address.)
I am on my way back to Dallas from a quick trip to Washington DC. The cherry blossoms are beautiful, even if the weather is gray.
This week we do something a little different in our Outside the Box. Every weekend I get a very information-filled blog called Investment Postcards from Cape Town (http://www.investmentpostcards.com) by Dr. Prieur du Plessis. In it he highlights what he thinks is the most important portion of the writings of 10 to 15 analysts from around the world on the state of the economy and investing, and summarizes the news and data. I find it very useful, as Prieur generally finds a lot of interesting pieces that I miss and go on to read in my effort to stay on top of the markets. You can subscribe on your own if you like by activating the subscription option on the blog.
Dr. Prieur du Plessis is chairman of the Plexus group of companies, which is a well established money management firm in South Africa, one part of which is essentially the Morningstar of South African mutual funds. And I am proud to say he is my South African partner.
This week's Outside the Box is from good friend and South African partner Dr. Prieur du Plessis of Plexus Asset Management. Prieur suggests that we should not be surprised at last week's rate cut, as it is consistent with past rate cut cycles when viewed from the fact that banks are tightening up on their lending standards to both consumer and commercial borrowers. There are a number of very original graphs here with some very interesting analysis that is truly Outside the Box.
This week in a very special Outside the Box we have an investment outlook tour de force. My friend and South African business partner Dr. Prieur du Plessis gathered a group of some of the more interesting investment managers in the industry, along with your humble analyst, and let us have the opportunity to opine on what is driving various markets and their respective implications.
We begin with the U.S. economy, addressing the underlying implications of the real estate market, interest rates, liquidity, and the ever precipitously depreciating dollar, procuring an assessment of these collective market drivers and their respective effects on the U.S. economy, the stock market, bond market, and commodities market.
Thereafter, we incorporate macroeconomic drivers that will impact our respective outlooks be they the influence of the Asian Tiger economies, Yen Carry Trade, and the ample liquidity derived from vast foreign currency reserves on account of currency manipulation, and the respective consumption patterns of the developing countries on the global economy.
We conclude with an assessment of the risks to domestic and global economies from the market drivers and offer advice we have humbly been forcefully taught throughout the years by the always hard task-master, the market.
This week's letter is by good friend Dr. Prieur du Plessis, who is managing director of Plexus Asset Management based in Cape Town, South Africa. What kind of returns can we expect from US equities over the next ten years? It turns out that while you can get an average number, the range of actual historical returns is actually larger than you might think. Thus, past performance is not indicative of future returns, but past performance and current valuations can give us some hints.
This is one of a series of postings that Prieur does at a blog site called Investment Postcards from Cape Town, which is starting to get the international notice that it deserves, as I see references popping up in more and more places. You can see his work at http://investmentpostcards.wordpress.com/. (The last two posts are about gold and gold stocks, which I also find very interesting.)
Plexus Asset Management is the "Morningstar of South Africa." They track all the various funds in South Africa, host annual awards and do a lot of very sophisticated research. (I should note that I am a partner with Plexus in some businesses in South Africa.) I trust you find today's material truly Outside the Box.