Prospective returns on equities

What long-term returns can you expect to make on a portfolio of stocks? That’s a crucial question for pension funds and other investors.

There are several ways you can try to answer this question. You can look at historical returns and assume that the future will resemble the past.

Or you can model revenue growth, profit margins, the tax on those profits, inflation, the type of company that is publicly listed1, dividends, share buybacks, etc.

John Hussman thinks owners of U.S. equities will experience a lost decade from present valuations. He says the S&P 500 could drop 65%.

The pseudonymous Jesse Livermore is more optimistic than Hussman. Still, Livermore doesn’t believe that fund managers will be able to generate 7.5% returns.

What do you think? Are you fully invested? Or have you been waiting in vain for a correction?

  1. For example, it could be that companies as a whole are highly profitable, but those profit making companies are disproportionately privately held. Or vice versa.

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