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Calculator Predicts Poor Long-Term Stock Returns Due to Stock Valuation Effect

Wed Jul 5, 8:00 AM ET

Purcellville, VA (PRWEB) July 5, 2006 -- The S&P stock index is likely to provide a real return of less than 3 percent over the next 20 years. So reports a new calculator that employs regression analysis on historical stock-return data going back to 1870.

“Investors have been misled by reports on what the historical data says that ignore the effect of changes in stock valuation,” said Rob Bennett, co-author of the new calculator. “Today's stock valuation level is not at all typical, and it is not realistic to expect stocks to generate typical returns again until stocks are again being sold at reasonable prices.”


The new investing calculator is available free of charge at web sites run by Bennett and Russell. The calculator page at Bennett's site is -- The calculator page at Russell's site is --

The historical stock-return data shows the most-likely 30-year real return for purchases of the S&P index made today to be 5.3 percent (with a range of possibilities stretching from 3.4 percent to 7.4 percent). The outlook is considerably darker for the more immediate future, however. The calculator reports a most-likely 10-year return of 1.3 percent (with a range of possibilities stretching from a negative 4.7 percent to a positive 7.3 percent). For 20 years, the most likely return is 2.7 percent (with a range of possibilities stretching from a negative 1.3 percent to a positive 6.7 percent).

Robert Shiller, John Bogle, Warren Buffett, William Bernstein and other stock investing experts have often warned investors that it is not reasonable to expect the sorts of returns that fueled the bull market of the 1980s and 1990s now that valuations have reached such high levels. Until publication of the calculator, though, stock investors have not had a means of quantifying the valuation effect and of thereby putting advice to be wary of the effect of valuation changes to significant practical use.

I also believe that the stock market will have damp returns over the next five or so years, maybe even longer. Note that I said stock market, not individual stocks. I think the stock market as a whole will still be a fairly decent investment choice, but I doubt it will provide the returns that we saw in the bull markets of the '80's and '90's. There are still many, many opportunities with individual companies. Always remember that there are opportunities with stocks no matter how the market is acting.

I don't have any thoughts on this new calculator, but it sounds like Bennett and Russell have put in lots of time into the research behind this calculator, so it will be interesting to see if they are right. Again, I don't really care what the S&P 500 is doing, all I really care about is how my individual holdings perform in the long run.

Any thoughts?


David K
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