Poll

What do you expect the stock market to do over the next five to ten years?

Negative - another major crash or depression
12 (8.2%)
Flat - stagnation, zero or near-zero net growth
22 (15.1%)
Slow/mediocre growth - the market limps along below historical averages
64 (43.8%)
Average growth - market returns in line with historical trends
42 (28.8%)
Explosive growth - the market blows past all expectations
6 (4.1%)

Total Members Voted: 124

Author Topic: Your market prediction: what's on the horizon?  (Read 4710 times)

FireLane

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Your market prediction: what's on the horizon?
« on: December 13, 2015, 03:30:07 PM »
This isn't a scientific poll by any means, but I thought it might be interesting to get the sense of the MMM community. What do you expect the stock market (U.S. or world, whatever you're invested in) to do over the next five to ten years?

Obviously, I don't think anyone can predict the future. If I did, I wouldn't be buying index funds. But who knows, maybe there's wisdom in the crowd.

And for those of us who plan to FIRE in this timescale (like me!), it might be worthwhile to know where we stand along the optimism-pessimism spectrum regarding the market landscape ahead. If my plan for early retirement is built on wildly optimistic notions about what stocks will do in the next few years, I'd like to know that so I can temper my expectations. But if I'm being far more pessimistic than the average investor, that might be useful information to have as well.

If you're so inclined, feel free to explain in this thread why you made the prediction you did.

rpr

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Re: Your market prediction: what's on the horizon?
« Reply #1 on: December 13, 2015, 04:11:13 PM »
One of the options should have been -- I don't know.

Since that option was not there and since the OP kindly allowed up to 5 choices, I marked everyone of them.

Indexer

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Re: Your market prediction: what's on the horizon?
« Reply #2 on: December 13, 2015, 05:51:57 PM »
I voted average because statistically that is most likely to be correct. Markets can be all over the place in the short term, but over the long term they have pretty consistently grown by a rate over inflation.

iamlindoro

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Re: Your market prediction: what's on the horizon?
« Reply #3 on: December 13, 2015, 05:53:56 PM »
I voted average because statistically that is most likely to be correct. Markets can be all over the place in the short term, but over the long term they have pretty consistently grown by a rate over inflation.

Same, for exactly the same reason.  Since we're talking about a 10 year timeframe, the average is the only defensible answer.

oldladystache

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Re: Your market prediction: what's on the horizon?
« Reply #4 on: December 13, 2015, 05:58:48 PM »
I voted average because statistically that is most likely to be correct. Markets can be all over the place in the short term, but over the long term they have pretty consistently grown by a rate over inflation.

Same, for exactly the same reason.  Since we're talking about a 10 year timeframe, the average is the only defensible answer.

Same here.

AdrianC

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Re: Your market prediction: what's on the horizon?
« Reply #5 on: December 13, 2015, 07:38:28 PM »
I voted average because statistically that is most likely to be correct. Markets can be all over the place in the short term, but over the long term they have pretty consistently grown by a rate over inflation.

Same, for exactly the same reason.  Since we're talking about a 10 year timeframe, the average is the only defensible answer.

And yet folks like John Bogle are expecting quite a bit less than average over the next ten years.

Starting valuation matters.

iamlindoro

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Re: Your market prediction: what's on the horizon?
« Reply #6 on: December 13, 2015, 08:05:44 PM »
And yet folks like John Bogle are expecting quite a bit less than average over the next ten years.

Starting valuation matters.

The misquoted and misrepresented data attributed to Bogle comes from a Bloomberg interview.  The sound byte quoted in many articles was that nominal returns over the next ten years would be 5%, but what most of the articles miss is that Bogle was speaking about an asset allocation of 50% stocks and 50% bonds.  He says that one can expect approximately 7% returns on stocks, which is indeed inline with historical averages.  Since the question is specifically about the stock market, even Bogle agrees that we're looking at approximately average returns over the next decade there.

Bogle said:

"We're assuming future returns in the area of 7 and a half, 8 percent a year.  We are not going to get 8% a year in the next, say, 10 years.  Why not?  Because we know a couple of things.  We know that the return on bonds today, generously speaking, is 3 percent.  The return on stocks, with a two percent dividend yield, maybe 5 percent earnings growth, and a PE that if we're lucky stays the same is gonna be around 7 (percent), so you can look at maybe around a 5 percent return for the pension plans as a reasonable expectation."

Besides, even Bogle himself would tell you that neither he nor anyone else can predict the future of the market with any degree of certainty.  That's why he invented the index fund.

As to whether starting valuation matters, you'd need to be more specific.  Statistically speaking, the market is almost always at or near a new high.  It hasn't prevented historically average returns in the past, and there's no reason to believe it will start now.
« Last Edit: December 13, 2015, 08:10:51 PM by iamlindoro »

dmn

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Re: Your market prediction: what's on the horizon?
« Reply #7 on: December 14, 2015, 04:11:58 AM »
As to whether starting valuation matters, you'd need to be more specific.  Statistically speaking, the market is almost always at or near a new high.  It hasn't prevented historically average returns in the past, and there's no reason to believe it will start now.

"Valuation" usually refers to stock prices normalized to some meaningful quantity, e.g. companies' earnings. On a 10-year horizon, P/E ratios and especially 10-year CAPE ratios are known to be inversely correlated to future stock returns. Since these metrics are both on the high side at the moment, especially for the US market, I expect lower than historical average returns.

However, there is a big random component, so I voted for the first three options: anything between a crash (worse than expected) and the historical average returns (better than expected).

AdrianC

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Re: Your market prediction: what's on the horizon?
« Reply #8 on: December 14, 2015, 08:29:02 AM »
The misquoted and misrepresented data attributed to Bogle comes from a Bloomberg interview. 

That's not the one I was thinking about. This is:

http://news.morningstar.com/articlenet/article.aspx?id=718910&SR=Yahoo

Over the next 10 years, investors may see stock returns as low as 4% before inflation, well below the level assumed in many financial plans, says Vanguard founder Jack Bogle.

He gives his reasoning in the interview. Seems defensible to me.

He assumes PE compression over ten years. That's where the starting valuation (and ending valuation) comes in.

This is US stocks. International could be better. Starting valuations are lower but risk is higher.

We have a substantial allocation to international. We have an even bigger allocation to cash right now.

MustacheAndaHalf

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Re: Your market prediction: what's on the horizon?
« Reply #9 on: December 14, 2015, 07:53:41 PM »
CAPE 10 is based on the idea paying too much for earnings makes for lower returns in the long term.  So I'm going with the Schiller CAPE 10 and saying "below average returns" for US equities in 10 year time frame.
http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html

Here is a paper from Vanguard supporting this view, but claiming only 40% predictive power:
Quote
We confirm that valuation metrics such as price/earnings ratios, or P/Es, have had an
inverse or mean-reverting relationship with future stock market returns, although it
has only been meaningful at long horizons and, even then, P/E ratios have “explained”
only about 40% of the time variation in net-of-inflation returns. Our results are similar
whether or not trailing earnings are smoothed or cyclically adjusted (as is done in
Robert Shiller’s popular P/E10 ratio).
https://personal.vanguard.com/pdf/s338.pdf

AdrianC

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Re: Your market prediction: what's on the horizon?
« Reply #10 on: December 16, 2015, 06:00:35 AM »
A clear majority voted for Negative/Flat/Mediocre. I agree, that's where the evidence points.

Those investing in the 90's made out like bandits and we are left with an expectation of mediocre returns going forward.

That's just the way it is.

arebelspy

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Re: Your market prediction: what's on the horizon?
« Reply #11 on: December 16, 2015, 06:41:12 AM »
A clear majority voted for Negative/Flat/Mediocre.

Uh, no, they didn't.

As of right now, the poll shows:
Negative - another major crash or depression (7.2%)
Flat - stagnation, zero or near-zero net growth (15.5%)
Slow/mediocre growth - the market limps along below historical averages (49.5%)
Average growth - market returns in line with historical trends (25.8%)
Explosive growth - the market blows past all expectations (2.1%)

About half said slow/mediocre growth, but then you somehow lump in Negative and Flat with that?  While it's true that negative and flat would push that 49.5% over 50%, so you could say, as you did "A clear majority voted for Negative/Flat/Mediocre," it's misleading.

I could say the opposite: A clear majority voted for Mediocre/Average/Explosive growth" and it would also be true (as it would too be over 50%)--and that fact (the opposite of yours), would be more true than your statement, as more people voted for that than for your combination.

The correct way to present the stats is: about 25% historical average or better, 50% slow growth, 25% flat or down.

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2Cent

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Re: Your market prediction: what's on the horizon?
« Reply #12 on: December 16, 2015, 06:55:47 AM »
I voted average because statistically that is most likely to be correct. Markets can be all over the place in the short term, but over the long term they have pretty consistently grown by a rate over inflation.
But if you're assuming the market always averages out in the long term, and today it is above average, then the correct prediction is that it will be below average for some time ahead.

AdrianC

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Re: Your market prediction: what's on the horizon?
« Reply #13 on: December 18, 2015, 06:23:27 PM »
A clear majority voted for Negative/Flat/Mediocre.

Uh, no, they didn't.


Jeez.

A clear majority voted for less than average growth.

That better?


PizzaSteve

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Re: Your market prediction: what's on the horizon?
« Reply #14 on: December 19, 2015, 12:04:33 AM »
I think it is important to understand nominal vs real rates of return.  In extremely low inflation or even slightly deflationary periods, very low returns can actually be significant in terms of real wealth creation.  For example, if goods are cheaper even 0% performs well.

So I am assuming that technology enhancements are increasing the 'value content' of equivalent products (e.g. A home, car, computer is gradually getting better, on average.  Better insulation, better communications, better materials).  Some goods don't improve (like meat).

So this is what I think is happening.  Wealth is growing, but it is not apparent on the balance sheet.  Stuff like free google maps, MMM forums, better phones, better cars/bikes, even cleaner air can create benefits that don't show in GDP or the S&P 500.  Nominal will be low, but actually the economy will be booming in certain unmeasured segments.

arebelspy

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Re: Your market prediction: what's on the horizon?
« Reply #15 on: December 19, 2015, 12:33:50 AM »
A clear majority voted for less than average growth.

That better?

Yup, much more accurate!  :)
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