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.
There are those who sweat over every decision, worrying about how it will affect their lives and investments. Then there is the school of thought that we should focus on the big decisions. I am of the latter school.
85% of investment returns are a result of asset class allocations and only 15% come from actually picking investment within the asset class. Getting the big picture right is critical. In this week's Outside the Box we look at a very well written essay about the biggest of all question in front of us today. Do we face deflation or inflation?
Value is a big and well-known strategy within the investment world. Many
analysts and investors alike rely heavily on the P/E ratio as a metric to
determine the value of a stock, indices or other form of security. But just as
with any other investment metric, the data can be skewed if not viewed within
the proper context. This week's Outside the Box is by John Hussman where he
discusses the importance of analyzing P/E ratios under the backdrop of the
earnings cycle. John shares his view on "normalized" earnings as well as
explains how he calculates the averages over a 5 year period.
Dr. Hussman is the president and principal shareholder of Hussman Econometrics Advisors, the investment advisory firm that manages the Hussman Funds. He is also the President of the Hussman Investment Trust. Prior to managing the Hussman Funds, Dr. Hussman was a professor of economics and international finance at the University of Michigan. He continues to write his "Weekly Market Comment" that provides both excellent insight and analysis into the current market climate.
I trust that you enjoy Hussman's research and find it to be valuable to thinking "outside the box."
Does the concept of retirement sound scary? If it does don't feel that you're alone. A lot of issues and concerns come along with the subject, the most familiar of which is financial freedom. Even after you have saved a substantial nest egg, it can be difficult to plan out your withdrawal strategy when presented with several unknown variables such as life expectancy and rate of return.
Today's Outside the Box is by my good friend and the always fascinating analyst, Ed Easterling. Ed has written a very well researched article on how to structure a portfolio and plan for retirement. How much of your retirement portfolio can you withdraw each year? It may not be as much as you think if you want to be sure that your money outlives you. Ed covers some of the inherent risks and describes several scenarios that people face. For those of you unfamiliar with Ed, he is the author of Unexpected Returns: Understanding Secular Stock Market Cycles, President of an investment management and research firm, and a member of the adjunct faculty at SMU's Cox School of Business. You can read more about him and his research at www.crestmontresearch.com.
Whether young or old, retirement is a point in life that we all must face. I believe that you will find Ed's article to be an engaging view on how to properly prepare for and plan out your retirement.
I am excited to present to you today a very interesting piece by my good friend and local Dallas resident, Ed Easterling. Ed has performed an in-depth study on how several key fundamentals have performed over time and how they are likely to perform over the next several years. His analysis shows how EPS and corporate profit margins have correlated to the business cycle dating all the way back to 1950. I find his study to be very insightful and dead on in the midst of the current market climate.
For those of you unfamiliar with Ed and his work, he is the author of Unexpected Returns: Understanding Secular Stock market Cycles and President of an investment management firm. In addition, Ed is a member of the adjunct faculty at SMU's Cox School of Business where he teaches a course on alternative investments and hedge funds for MBA students. Mr. Easterling is most known for publishing provocative research on the financial markets which can be viewed at www.CrestmontResearch.com.
I trust that you will find his "Beyond the Horizon" to be very compelling research and an "outside the box" point of view. May you enjoy!