Before getting too excited I would remind that it is very difficult to predict what equities will do for one year let alone several years.
I would zoom out on a few points of how markets and cycles tend to work. The US stock market historically has had an up year just under 75% of the time, returns are not linear so often a large portion of the gains for an entire cycle will come in just one or maybe two years. Within a cycle it is likely there will be a big up year, a big down year and then several years of relatively muted results.In 2009 the SPX was up 23%, in 2010 it was up 14% and last year it was flat. My thoughts for 2012 have been a big rally during the year that mostly retraces such that the year finishes up a little. If 2012 were to be up a little in the fashion I think will be the case or better than up a little then that would be four years without a large decline in a sequence similar to past cycles which paves the way for a down year in 2013. This conclusion is about how cycles often play out not about fundamentals and of course could be wrong. It is certainly not a given that 2012 will be an up year even though there are cyclical factors that support the year finishing at least a little higher.
Despite the worst financial crisis having exaggerated some of the volatility attributes of the market it does not appear to me to have altered the pattern of how the cycle is playing out. Of course time may invalidate this but for now this seems to be the case.
My thesis from many years back is that equity market growth would be less than it used to be in the US and Western Europe. I have felt that other markets like the Scandies, Anitpodean and certain emerging markets will be where growth comes from. The thing I take from the Goldman call is the possibility that the US and maybe Western Europe won't be such heavy anchors on global equity returns. During the crisis there were plenty of foreign markets that seemed to be dragged down more than was justified because of the fear created by the crisis. Market decline or lift for reasons that are unjustified all the time but the crisis is an easy one to point to.Yesterday we went to a spring training game between the Brewers and the Diamondbacks with Joellyn's parents and Joellyn's aunt and uncle.
4 comments:
What about Ben Graham's basic criteria? Compare bond yields to earnings yields combined with a healthy margin of safety.
That seems to point to equities too. At least it takes guess work out of the mix.
From where I sit valuation measures like this contribute to the outlook but are not my top indicator, I am not a fan of blind faith in things that should work.
One of the most dangerous investing behaviorial biases that exist are finding patterns where none exist.
Could this the case with your cycle analysis? Perhaps there are cycles, but are they regular, repeatable, or predictable? If such cycles were exploitable, why would an investor demand an equity risk premium?
Why do you dismiss rational decision making vis-a-vis earnings yields and interest rates on highly rated bonds as "blind faith?"
I do not understand your analysis.
When you were talking about the cycles of the investment (up, down, muted) and looking at the baseball stadium pics, I honestly could tell from the pictures but I couldn't help but think of the Chicago Cubs when you went into the details.
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