The Motley Fool Discussion Boards

Previous Page  
Investing/Strategies / Retirement Investing 

URL:
http://boards.fool.com/stockpricesinthenextdecade18699623.aspx


Subject: Stock prices in the next decade  Date: 3/7/2003 1:48 AM  
Author: yobria  Number: 35842 of 82859  
I'm reading the excellent "Irrational Exuberance" by Yale Economist Robert Shiller, which came out in 2000 and correctly predicted the stock market crash of the following two years. He did this by analyzing P/E ratios versus the 10year future returns in the stock markets around the world. The higher the P/E, the lower the nextdecade returns. This makes since, a market with a high P/E offers less E for your P, and thus less upside. Anyway Shiller provides a scatter chart of P/Es vs. 10year real future returns for the US Stock market for the period 18811989 (1989 is a far as he could go, since he needed 10 years of future data for each point). I drew a trend line through the graph. The formula for the line is about x=y+20. In other words: At a market P/E of 20, you should expect a 0% real average annual return of your stock investment over the next 10 years. At a P/E of 15, a 5% real return. At a P/E of 10, 10%. The current P/E of the US market is about 22, so we should expect a 2% real return over the next 10 years. If inflation is 2% or so, expect your stock investment to be exactly where it is now in 2013. Ug. Nick 

Copyright 19962017 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us 