Bogle looking at a 4% total return for stock

Benz: Jack, one of the topics we always cover at this conference is your expected return forecast for various asset classes. Let's start with U.S. equities.

Bogle: Well, for U.S. equities, I have a simple formula, as you know. It says divide it up into two segments: One is investment return and the other is speculative return. Investment return is the present dividend yield--a little over 2%--and the earnings growth that follows. And I think it's going to be a little bit of a push for that earnings growth to get to 6%--but I'm going to use 6%. So, that would be an 8% investment return on stocks.

Now, when you get to speculative return, that's whether the P/E ratio go up and pump that up or go down and deflate it. And I look at the P/E from the perspective of past reported earnings--GAAP earnings, as we say it--at being about 20 times. Wall Street looks at it through forward earnings, but forward expected earnings. So, they're using about a 17 P/E, and I'm using about a 20. I'm going to stick to my guns. To go from 20 to 17, that would be about a 2% annual loss. So, I think the best thing we can expect--and this is higher than I'm going to talk about tomorrow--is that 8%, [or 2% dividend yield and 6% earnings growth]. But in fact, I don't think earnings growth is going to be that good, and so I think the P/E could easily get to a more normal long-term range of 15. So, that would be 3% from that number. So, you'd have an investment return of 2% and 5% for 7%, minus 3% for speculative return. That would be 4% for stocks, and that's not a very good number.

no. 3 in America: Jeff Bezos

A 10% bump in Amazon's stock price in after-hours trading following a positive earnings report Thursday made a lot of people a little richer — and CEO Jeff Bezos a whole lot richer.

According to the Bloomberg Billionaire Index, the leap in Bezos' Amazon stock increased his fortune by almost $5 billion Thursday evening, making him the third-wealthiest person in the United States and the fifth world wide.

At the beginning of the year he was only the 13th wealthiest American, according to Bloomberg.

Bloomberg put Bezos' current net worth at $55 billion. That leaves only Bill Gates, with $83.9 billion and Warren Buffett, with $64.5 billion, ahead of him.

The stock move pushed the Koch brothers, Charles and David, to fourth and fifth place.

Bill Gates is no. 2

There's a new richest man in the world.

It's Spanish clothes magnate Amancio Ortega, who has overtaken Microsoft founder Bill Gates for the first time ever.

According to Forbes' real-time tracker, the elusive multi-billionaire founder of European clothes retailer Zara just smashed past Bill Gates to become the wealthiest person on the planet, with a fortune of $79.8 billion (€71.83 billion or £51.84 billion).

The elusive Ortega isn't as much of a household name as Gates, but he's quietly ascended the wealth rankings in recent years, as his company continues to perform well and expand.

Unlike many of the richest people in the world, Ortega has a fascinating rags-to-riches story. Born in 1936 during the Spanish civil war, Ortega's father earned 300 pesetas a month, a meagre salary. 

Ortega's biographer described his memories of a childhood during which his family could not always afford enough food. He left school in his early teens, working his way up from the absolute bottom rung as a messenger boy in a shop.

It wasn't until he was 40 years old that Ortega got around to setting up Zara, the fast-fashion retailer that has gone from strength to strength — first growing in Spain, then neighbouring Portugal and France, then London. Now it's all over the globe. 

According to Forbes, Ortega's wealth rose by 5.3%, another $4 billion, over the last 24 hours. That's partly down to a surge in Inditex shares, the parent company that owns Zara.

In the last 10 years, the market value of Inditex has risen by about 570%, the main driver of Ortega's climb up the ranks.

in search of the stock market bubble

So, (the sentence starts with "so" because this is a sort of ongoing discussion that's been going on here for years) I've been thinking about the overall market again.  Despite my telling people to ignore this and ignore that, I can't help it; sometimes I think about this stuff.  Well, it's OK to think about it as long as it doesn't lead to irrational decisions.

Anyway, as usual, there is a lot of talk of the market being insanely overvalued, median P/E's at post war records and all the usual.

I look at the charts and some are scary, but I still don't get the sense of a bubble.  I've seen the Japan bubble in 1989, the 2000 internet bubble and some others.  I see the Chinese bubble going on right now.  But I still don't really get the sense that the U.S. stock market is in a bubble.  Yes, there is a pocket of bubbliness, like in some parts of the tech sector (social networks, biotech etc.), but overall I just really don't see it.

I made a post just like this one two or threes years ago when people were saying the market is overvalued.  I looked up the P/E ratios of the Nifty Fifty stocks in 1972 to see what a real bubble looks like.

What is really interesting to me here is that the S&P 500 index P/E ratio at the time was 19.2x.  But look at the nifty fifty P/E ratios.  To me, this is what a bubble looks like.  These 'ordinary' companies were trading at higher P/E's than high growth social network stocks or fast casual restaurant chain today!

People say that the market is tremendously overvalued.  Is the market so overvalued that I would be comfortable with a massive short position?  I just imagine myself with a big short position to see how I would feel.  What do I need to make money?  What can go wrong?  Is there really a big margin of safety in terms of valuation; are things so overvalued that it's a no brainer to be short?  At this point, I would not be comfortable short at all.  Sure, earnings for everyone might be bloated due to QE-infinity and budget deficits.  There are other reasons to be bearish, but I just don't see it from a valuation point of view.  The market is certainly not cheap.  But it's not so expensive that it's a no-brainer short either.

I've been saying this sort of thing since 2011 when I first started this blog; that the market is fine.  But sooner or later the bull market will end.  The market will tank and people will go back and read these posts and have a good laugh.  I know that will happen for sure.  But that's OK.

I'm not trying to predict anything, nor am I saying that we won't have another bear market again.  The market will go down for sure, 50% or more.  There is no doubt about that at all.  But I don't know when that will happen.

-- The Brooklyn Investor, June 16, 2015

***

Blodgett says market is more expensive than 2000 and sees a decade or more of lousy returns. [via chucks_angels]

why investors underperform the market

The stock market has averaged compound total returns of about 9% a year over the last 100+ years. This means a doubling of your money about every eight years.

When your money doubles every eight years on average you will eventually become very wealthy. And that’s only if you match the market returns. Surely, some investors should beat this "average" return by a substantial amount.  So why aren’t there more rich and ultra-rich investors if it really is that easy?

The sad truth

The sad truth is, it is not that easy.

On paper, investing is very simple. But we don’t live on paper.


Real-life investors (unless you are a robot, that is you) greatly underperform the market.

Case in point: Over the last 20 years, the Standard & Poor's 500 has averaged 9.2% annual returns.

Individual investors have averaged returns of 5.0% a year over the same time period according to the 2014 DALBAR QAIB Study.


There is no reason at all individual investors should greatly underperform the market – but they are.

The most important investing risk is you

The reason individual investors fail to beat – or even match – the market is because we fail to follow a consistent strategy when times get tough.


Simply put, we panic.