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To partially atone for outraging so many posters I respect, here is some interesting stattstics regarding the total return from the S&P 500 index (includes reinvesting dividends with zero taxes.)

This is useful for pessimists and optimists both. For example, even if you don't like current valuations, it is reasonable to expect a minimum of 7.2% annual return over the next 30+ year period.

The list below eliminates bias due to starting and ending points by taking rolling 1, 2, 3, ..., 87 year returns and computing CAGR across all of them.

Data for 1928 through 2014 from Damodaran's website (http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...) Note that his "geometric average 1928-2014" corresponds to the last line.

Avergae CAGR across 1 years = 11.53%, max 52.56%, min -43.84%
Avergae CAGR across 2 years = 10.42%, max 42.23%, min -35.15%
Avergae CAGR across 3 years = 9.97%, max 30.85%, min -27.30%
Avergae CAGR across 4 years = 9.87%, max 30.22%, min -22.96%
Avergae CAGR across 5 years = 9.97%, max 28.30%, min -12.71%
Avergae CAGR across 6 years = 10.07%, max 25.03%, min -10.27%
Avergae CAGR across 7 years = 10.08%, max 24.05%, min -4.01%
Avergae CAGR across 8 years = 10.20%, max 21.84%, min -4.14%
Avergae CAGR across 9 years = 10.27%, max 20.66%, min -4.62%
Avergae CAGR across 10 years = 10.30%, max 20.11%, min -1.67%
Avergae CAGR across 11 years = 10.40%, max 19.35%, min -1.85%
Avergae CAGR across 12 years = 10.47%, max 18.99%, min -2.81%
Avergae CAGR across 13 years = 10.51%, max 18.72%, min -3.25%
Avergae CAGR across 14 years = 10.61%, max 18.75%, min -1.79%
Avergae CAGR across 15 years = 10.74%, max 18.80%, min -0.20%
Avergae CAGR across 16 years = 10.87%, max 18.06%, min 0.91%
Avergae CAGR across 17 years = 10.97%, max 18.22%, min 2.68%
Avergae CAGR across 18 years = 11.04%, max 18.34%, min 2.03%
Avergae CAGR across 19 years = 11.08%, max 17.53%, min 2.20%
Avergae CAGR across 20 years = 11.12%, max 17.70%, min 2.37%
Avergae CAGR across 21 years = 11.15%, max 17.74%, min 3.08%
Avergae CAGR across 22 years = 11.18%, max 17.20%, min 4.20%
Avergae CAGR across 23 years = 11.21%, max 16.48%, min 4.98%
Avergae CAGR across 24 years = 11.23%, max 16.95%, min 5.50%
Avergae CAGR across 25 years = 11.23%, max 17.11%, min 5.22%
Avergae CAGR across 26 years = 11.23%, max 15.97%, min 6.49%
Avergae CAGR across 27 years = 11.23%, max 14.80%, min 7.60%
Avergae CAGR across 28 years = 11.21%, max 13.99%, min 7.50%
Avergae CAGR across 29 years = 11.18%, max 14.00%, min 6.91%
Avergae CAGR across 30 years = 11.15%, max 13.63%, min 7.97%
Avergae CAGR across 31 years = 11.12%, max 13.51%, min 8.10%
Avergae CAGR across 32 years = 11.09%, max 13.40%, min 7.85%
Avergae CAGR across 33 years = 11.04%, max 13.15%, min 8.36%
Avergae CAGR across 34 years = 11.00%, max 12.44%, min 7.83%
Avergae CAGR across 35 years = 10.97%, max 12.71%, min 8.22%
Avergae CAGR across 36 years = 10.93%, max 12.65%, min 8.44%
Avergae CAGR across 37 years = 10.89%, max 12.72%, min 8.49%
Avergae CAGR across 38 years = 10.84%, max 12.23%, min 8.01%
Avergae CAGR across 39 years = 10.81%, max 12.45%, min 8.39%
Avergae CAGR across 40 years = 10.78%, max 12.46%, min 8.45%
Avergae CAGR across 41 years = 10.73%, max 12.60%, min 8.01%
Avergae CAGR across 42 years = 10.71%, max 12.79%, min 7.90%
Avergae CAGR across 43 years = 10.71%, max 12.59%, min 8.05%
Avergae CAGR across 44 years = 10.72%, max 12.75%, min 8.09%
Avergae CAGR across 45 years = 10.71%, max 13.08%, min 7.21%
Avergae CAGR across 46 years = 10.71%, max 13.24%, min 6.84%
Avergae CAGR across 47 years = 10.74%, max 12.92%, min 7.41%
Avergae CAGR across 48 years = 10.78%, max 13.12%, min 7.73%
Avergae CAGR across 49 years = 10.81%, max 13.41%, min 7.41%
Avergae CAGR across 50 years = 10.85%, max 13.56%, min 7.39%
Avergae CAGR across 51 years = 10.89%, max 13.65%, min 7.60%
Avergae CAGR across 52 years = 10.94%, max 13.49%, min 8.02%
Avergae CAGR across 53 years = 10.97%, max 13.33%, min 7.76%
Avergae CAGR across 54 years = 11.01%, max 13.13%, min 7.98%
Avergae CAGR across 55 years = 11.05%, max 13.26%, min 8.23%
Avergae CAGR across 56 years = 11.09%, max 13.43%, min 8.19%
Avergae CAGR across 57 years = 11.12%, max 13.56%, min 8.56%
Avergae CAGR across 58 years = 11.15%, max 13.65%, min 8.72%
Avergae CAGR across 59 years = 11.17%, max 13.22%, min 8.67%
Avergae CAGR across 60 years = 11.20%, max 12.75%, min 8.80%
Avergae CAGR across 61 years = 11.22%, max 12.58%, min 9.14%
Avergae CAGR across 62 years = 11.21%, max 12.71%, min 8.93%
Avergae CAGR across 63 years = 11.21%, max 12.33%, min 9.24%
Avergae CAGR across 64 years = 11.20%, max 12.35%, min 9.21%
Avergae CAGR across 65 years = 11.18%, max 12.48%, min 9.22%
Avergae CAGR across 66 years = 11.15%, max 12.63%, min 9.10%
Avergae CAGR across 67 years = 11.10%, max 12.74%, min 9.47%
Avergae CAGR across 68 years = 11.07%, max 12.40%, min 9.66%
Avergae CAGR across 69 years = 11.02%, max 12.05%, min 9.96%
Avergae CAGR across 70 years = 10.98%, max 11.67%, min 10.21%
Avergae CAGR across 71 years = 10.90%, max 11.64%, min 10.34%
Avergae CAGR across 72 years = 10.79%, max 11.63%, min 9.69%
Avergae CAGR across 73 years = 10.65%, max 11.64%, min 9.48%
Avergae CAGR across 74 years = 10.50%, max 11.59%, min 9.22%
Avergae CAGR across 75 years = 10.39%, max 11.50%, min 9.45%
Avergae CAGR across 76 years = 10.33%, max 11.21%, min 9.47%
Avergae CAGR across 77 years = 10.26%, max 11.00%, min 9.41%
Avergae CAGR across 78 years = 10.15%, max 10.91%, min 9.45%
Avergae CAGR across 79 years = 10.12%, max 10.84%, min 8.92%
Avergae CAGR across 80 years = 10.03%, max 10.88%, min 8.69%
Avergae CAGR across 81 years = 9.88%, max 11.10%, min 8.89%
Avergae CAGR across 82 years = 9.83%, max 11.13%, min 8.96%
Avergae CAGR across 83 years = 9.64%, max 10.87%, min 8.87%
Avergae CAGR across 84 years = 9.40%, max 9.97%, min 8.95%
Avergae CAGR across 85 years = 9.33%, max 9.48%, min 9.20%
Avergae CAGR across 86 years = 9.40%, max 9.55%, min 9.25%
Avergae CAGR across 87 years = 9.60%, max 9.60%, min 9.60%
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No. of Recommendations: 2
To partially atone for outraging so many posters I respect, here is some interesting statistics...

...it is reasonable to expect a minimum of 7.2% annual return over the next 30+ year period


First of all, you didn't outrage me. In fact, I think you are quite right: Buffett and Munger are long on generalities and short on specifics. I chalk this up to them defending the interests of their investors - why tell everyone why IBM is such a great idea, when they want to buy lots more? I just hope one of them is writing down his thinking, so we at least someday we will get to know why we made so much money on IBM.

As for the 7.2% annual return in the next 30 years, I presume this is after inflation is backed out, right? So 9.60% from 1928 to 2014 amounts to 7.2% real returns? I don't see the 7.2% on Damodaran's website, but on this site:
http://www.moneychimp.com/features/market_cagr.htm

... which uses Damodaran's data, I get 9.85% total return, including reinvested dividends (when that box is checked). When I also check the box for inflation adjustment, I get 6.61% as real total return, which corresponds pretty closely to the classical Shiller constant of 6.5%.

Will returns over the next 30 years be as good? My guess is no, since I think the market is currently overvalued. If Hussman is right, we will only get 0% real total returns in the next 10 years. (He expects 1.6% nominal returns, let's call that zero real returns). If this is true, and subsequent returns revert to the historical 6.6%, then we would only get 4.4% over the next 30 years.

In fact, it's even slightly worse than that; if we got a full, say 40% correction right now (or say, last Dec 31st), how would that change the 87 year record? OK, not much, but a bit. The 9.6% average total nominal return would come down to 8.96%. [Math: (1.096^87*(0.6))^(1/87)-1]. So real returns, with a fair value at the end point, would have been 5.72%, and so getting the same returns going forward, from year 10 to year 30, would mean we get only 4% or so real total returns going forward.

Hmmm. I guess we really do need some concrete stock advice from Buffett and Munger, or someone else, if we are to get decent returns before too long.

Regards, DTB
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The major problem I have with your 7.2% number is they are too easy to misunderstand and misuse. People tend to plug such numbers into mathematical formulas and treat them as gospel. When at best they are merely a guideline.

Investors with long term goals like investing for retirement need to understand there are no guarantees. There is a risk.

Hence they are best off to invest for the best return they can manage and then monitor performance and adjust as some strategies prove to be more successful than others.

Yes, 7.2% may be a reasonable expectation but we also know some years are much worse and even strongly negative. And good years that are much better are also possible.

And over the next 30 years long term projections are little more than a guess.

I prefer simply to state the long term trend is upward. But putting numbers on it is risky, maybe even useless or misleading.
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As for the 7.2% annual return in the next 30 years, I presume this is after inflation is backed out, right?

My bad for not elaborating, it's actually the smallest nominal rate of return for any time horizon > 30 years (happens at 45 years.) The worst worst case for any 30...87 year period. Assuming a 3% average inflation over any long period, that would be 4.2% real return.

I agree with the points you make. However... why do you think 40% is the "full" correction? Based on P/E, CAPE, profit margins (ROS), ... ?
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As for the 7.2% annual return in the next 30 years, I presume this is after inflation is backed out, right?

My bad for not elaborating, it's actually the smallest nominal rate of return for any time horizon > 30 years (happens at 45 years.) The worst worst case for any 30...87 year period. Assuming a 3% average inflation over any long period, that would be 4.2% real return.


OK, got it. I think one could rightfully be accused of excessive pessimism, to take the worst 30-year return as the expected return going forward. The average return seems a more fair expectation, unless you think (as I do) that today's values are unusually high. I suspect that average 30-yr return starting at a year with valuations as high as today's is probably much lower than the 9.6% nominal average.


I agree with the points you make. However... why do you think 40% is the "full" correction? Based on P/E, CAPE, profit margins (ROS), ... ?

Hussman thinks 50%, or a bit more, would be a 'full' correction, using a number of factors such as the ones you mention. I just picked 40% as a wild guess, to see how much such a correction would affect the 87-yr return. I actually expected it to be less of an impact, but it takes the 87-yr return from 9.6% to 9.0%, or just under 6% adjusted for inflation. And since that correction hasn't happened yet, it obviously would hurt forward 30-yr returns just as badly, bringing them down from 6% to about 4%.

The real, one-time adjustment from today's values should maybe be more or less than 40%, depending on how permanent you think companies' present high levels of profitability turn out to be. But an adjustment that big makes a fairly big difference, both because it influences the historical 87-yr average return, and because it even more heavily influences the forward 30-yr return.

Regards, DTB
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And since that correction hasn't happened yet, it obviously would hurt forward 30-yr returns just as badly, bringing them down from 6% to about 4%.

And yet the projected return for stocks is still 1.5% more than the US 30-Y treasuries. There is no alternative investment left. A broad basket of REITs (e.g. VNQ) yields 2.3%. Commodities are long-term deflationary. Which makes it even more important to identify individual securities that will outperform, but you know.

As a sidebar, Bernanke says that the Fed had nothing to do with the real rates being low, it's the darned savings glut from Asia. When headlines were saying US is exporting our inflation to Asia, turned out the Asians were exporting their deflation to us. Invert, always invert, as Munger says (via Jacobi.)
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FWIW, the Credit Cuisse Global Investment Returns Yearbook 2015 (https://publications.credit-suisse.com/tasks/render/file/?fi...) has some interesting factoids. 1. Long-term real returns of equities over the last 115 years: US = 6.5%, rest of the world = 4.4%, weighted average 5.2%.
2. Long-term real returns of bonds over the last 115 years: US = 2%, rest of the world = 1.9%.

Remarkable how close the numbers are for bonds, considering the seedy reputation of foreign bonds and different inflation rates across countries.
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"Remarkable how close the numbers are for bonds, considering the seedy reputation of foreign bonds and different inflation rates across countries."

It shouldn't be all that surprising considering they are real returns (i.e. inflation adjusted).

Lenders are going to ask for greater interest rates to cover higher inflation and any excess risks (i.e. seedy reputation).
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It shouldn't be all that surprising considering they are real returns (i.e. inflation adjusted).

Lenders are going to ask for greater interest rates to cover higher inflation and any excess risks (i.e. seedy reputation).


I realize that, but the surprize part is how well the lenders guessed the correct risk premium to ask for these bonds, so that their real returns match US bonds. Consider the number of variables - variable and unpredictable inflation rates, exchange rates (a big one), market enthusiasm (Graham gives some great examples of this, when the exact same foreign bonds went from 25 to 100 to 8 and so on), changes in the perceptions of non-financial risks (geopolitical, regulatory, etc.) Very few of these factors apply to US bonds.

BTW slight nit - my OP mistakenly says 1.9% for "rest of the world" - it's actually for ALL world bonds INCLUDING US bonds. US bonds alone returned 2% in real terms, as stated in the OP.
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