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 Hard to make money in the next 10 years in the USA stock market (zt) |
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ceo/cfo
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作者：ceo/cfo 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
MONDAY, AUGUST 29, 2005
Preparing for Low Returns
By KEITH WIBEL
"IS WALL STREET READY for a low-return environment?" Conventional wisdom states that share prices follow earnings. Over very long periods, this statement is correct. However, the time necessary to validate this assertion is much longer than is relevant to most investors.
In order to test the conventional wisdom, we examined the growth in earnings in each decade, beginning with the 1950s. We chose 10-year periods because they're long enough to allow the cyclical peaks and valleys to offset each other, yet short enough to be a reasonable planning horizon for most investors. The results of the study are shown in one of the accompanying tables.
There is very little correlation between earnings growth and share-price appreciation. During the 1950s, earnings grew less than 4% a year, yet that was one of the best decades for stock-price performance. The 1970s saw the fastest earnings growth in the past 55 years, but that was the worst decade for investors in the stock market. (Fortunately, the book is still open on the 2000s.)
The average rate of earnings growth clusters around 6% a year, reflecting growth in the economy which tends to average 3% to 4% per year. Add 2% to 3% annually for inflation and one is back to approximately 5% to 7% growth in nominal gross domestic product and the growth in profits for the companies in the S&P 500 Index.
Growth in GDP-and therefore gains in corporate profits-is largely governed by the size and productivity of the workforce. The size of the workforce is mainly determined by the birth rate, so the number of people working will change at a glacial pace. Alan Greenspan has called productivity growth in the past few years "stunning." Even so, corporate profits in the 1990s expanded by less than 8% a year.
Over 10-year periods, the major determinant of stock-price returns isn't growth in corporate profits, but rather changes in price-earnings multiples. The bull market of the 1980s represented a period when multiples in the stock market doubled- then they doubled again in the 1990s. Though earnings of the underlying businesses climbed about 6% per year, stock prices appreciated nearly 14% annually.
If the historic figure of 6% per year is a reasonable expectation for earnings growth, we can make some guesses about future stock-market returns.
Earnings for the S&P 500 were $58.55 at the end of December 2004. The long-term rate of earnings growth is 6.1%. Compounding that for 10 years gives us an estimate of $105.85 in a decade. For the high and low estimates, we used the standard deviation of earnings growth of plus or minus 2.3 percentage points. Essentially, this means that two-thirds of 10-year periods will experience annual earnings growth ranging from 3.8% to 8.4%. We can then estimate that in 2014, earnings for the S&P 500 are likely to fall in the range of $85.02 to $131.17.
Table: Trouble Ahead?
Over the past 55 years, the stock market has sold at an average of 16.4 times earnings, with a standard deviation of plus or minus 7.0 times earnings. This means that a reasonable range for multiples is 9.4 times to 23.4 times earnings. Using this methodology, we can estimate the likely range of values for the S&P 500 in 10 years.
The likely range for the S&P 500 Index in 2014 would be 761.59 to 3069.14. This equates to an average return of minus 1.7% per year to plus 12.2% per year. The base case scenario calls for the S&P 500 Index to be at 1735.94, a yearly 4.1% rate of appreciation. Adding dividend income of 1.9% to the appreciation yields a total return of 6.0% per year -- something between minus 1.7% and plus 12.2% a year.
The implications are ominous:
Investors are unlikely to be as well-compensated for taking the additional risk of owning stocks, relative to bonds. The yield on 10-year government bonds is about 4.2%, while the expected total return from common stocks is only 6.0%.
Though stocks historically have produced a total return almost double that of bonds, over the next 10 years, this spread is likely to be much narrower. So most investors should have a balanced portfolio.
Investors close to retirement should be more cautious: One's retirement nest egg must be about 20% larger in a world of 6% returns than would be necessary in an 8% world.
As always, investors should demand that their advisers demonstrate that they add value for the fees they are paid. But, in any case, investors and their advise will have to work very hard to earn acceptable rates of return.
作者：ceo/cfo 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 Hard to make money in the next 10 years in the USA stock market (zt) -- ceo/cfo - (4625 Byte) 2005-8-28 周日, 06:00 (1312 reads)
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