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.