Author Topic: Expected Returns  (Read 5985 times)

AdrianC

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Expected Returns
« on: May 05, 2016, 01:24:11 PM »
Cliff Asness, AQR Capital on the Masters in Business Podcast:

The market's expected return is lower than historical, but investors get to keep more of that return, so it makes sense. Investing is much more efficient with indexing.

That's very interesting to me. We pull up data of historical returns and see how well our parents/grandparents could have done, but usually they didn't. Why? They didn't invest, or if they did the costs were high (no indexing, high broker fees, high fund fees, etc).

So our parents/grandparents could have gotten the market's 7% return over 50 years, less 2 or 3% in fees...

Asness predicts future real returns of 4% from stocks and 0.5% from bonds, 60/40 portfolio 2.6%, with inflation 1-2%.

Maybe 4% real ain't so bad after all.

zephyr911

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Re: Expected Returns
« Reply #1 on: May 05, 2016, 01:27:44 PM »
I'm not accepting 4% just because most people who had access to 7% were getting robbed for 2-3%.
I have a total basis of $20K in my rental partnership and expected gains of $10K this year, even after putting most of it on autopilot. Woo leverage! >.<

AdrianC

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Re: Expected Returns
« Reply #2 on: May 05, 2016, 04:18:37 PM »
I'm not accepting 4% just because most people who had access to 7% were getting robbed for 2-3%.
I have a total basis of $20K in my rental partnership and expected gains of $10K this year, even after putting most of it on autopilot. Woo leverage! >.<

Now scale that up 100x and I could get excited.

Monkey Uncle

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Re: Expected Returns
« Reply #3 on: May 06, 2016, 08:06:07 AM »
I've seen a number of articles lately that make a lot of noise over "only" 4% real returns going forward.  How long will that last?  For the foreseeable future?  How long is that?  Judging from most prognosticators' track records, I'd say the foreseeable future is no longer than a few years.  So what if real returns are 4% for a decade or so?  Big deal.  Real returns were a lot worse than 4% through the 1930s, the 1970s, and the 2000s.

I guess the intimation in all these articles is that real returns will be 4% forever, and we'll never see the multi-decadal average of 7% again.  That would indeed be noteworthy, but no one can make such a long-term prediction with any degree of accuracy.

zephyr911

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Re: Expected Returns
« Reply #4 on: May 06, 2016, 09:50:10 AM »
I'm not accepting 4% just because most people who had access to 7% were getting robbed for 2-3%.
I have a total basis of $20K in my rental partnership and expected gains of $10K this year, even after putting most of it on autopilot. Woo leverage! >.<

Now scale that up 100x and I could get excited.
Hahaha! You're telling me. That's the whole point though. I'm not stopping now, I'm accelerating. Might even start another one if these partners really decide 20k is all they ever want to put in - reinvested profits will grow fast, but nowhere near fast enough to take the inventory that's here.

AdrianC

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Re: Expected Returns
« Reply #5 on: May 06, 2016, 11:27:00 AM »
I've seen a number of articles lately that make a lot of noise over "only" 4% real returns going forward.  How long will that last?  For the foreseeable future?  How long is that?  Judging from most prognosticators' track records, I'd say the foreseeable future is no longer than a few years.  So what if real returns are 4% for a decade or so?  Big deal.  Real returns were a lot worse than 4% through the 1930s, the 1970s, and the 2000s.

I guess the intimation in all these articles is that real returns will be 4% forever, and we'll never see the multi-decadal average of 7% again.  That would indeed be noteworthy, but no one can make such a long-term prediction with any degree of accuracy.

This is the theory:
Long run equity return = Initial Dividend Yield + Growth Rate

1926-2010:
Initial Dividend Yield in 1926: about 5%
Growth rate of earnings & dividends: about 5%
1926-2010 equity return: 9.8%

2016-???:
Initial Dividend Yield in 2016: about 2%
Growth rate of earnings & dividends: 5%, say, less 2% for inflation
Projected equity return: 7%, or 5% after inflation.

That's without interest rates changing and with stocks staying at similar valuations to now.

4% comes from assuming a lower growth rate (reasonable, IMO) or looking at the CAPE (about 25 = 4% earnings yield - iffy).

Anyway, I thought Asness' idea was interesting.

effigy98

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Re: Expected Returns
« Reply #6 on: May 06, 2016, 12:38:35 PM »
I have a total basis of $20K in my rental partnership and expected gains of $10K this year, even after putting most of it on autopilot. Woo leverage! >.<

How does a rental partnership work and how do I find one?

steveo

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Re: Expected Returns
« Reply #7 on: May 06, 2016, 04:25:39 PM »
I've seen a number of articles lately that make a lot of noise over "only" 4% real returns going forward.  How long will that last?  For the foreseeable future?  How long is that?  Judging from most prognosticators' track records, I'd say the foreseeable future is no longer than a few years.  So what if real returns are 4% for a decade or so?  Big deal.  Real returns were a lot worse than 4% through the 1930s, the 1970s, and the 2000s.

I guess the intimation in all these articles is that real returns will be 4% forever, and we'll never see the multi-decadal average of 7% again.  That would indeed be noteworthy, but no one can make such a long-term prediction with any degree of accuracy.

100% correct.

Jim2001

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Re: Expected Returns
« Reply #8 on: May 06, 2016, 04:28:55 PM »

How does a rental partnership work and how do I find one?

You can create or contribute to a partnership in one or more ways. 
  • Find a deal
  • Find a partner
  • Put up cash
  • Put up credit
  • Put up sweat equity on a rehab