Is it possible that the market takes more than a decade to recover?

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halivingston
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Is it possible that the market takes more than a decade to recover?

Post by halivingston »

I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
Morik
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Re: Is it possible that the market takes more than a decade to recover?

Post by Morik »

Of course there is a possibility the market could take more than 10 years to recover.
There is a possibility the market could go down a whole lot and stay down for a long time.
This is part of the risk of investing in equities.

Is it very likely? I don't think it is very likely--we have seen this happen with the Japanese market, but as far as I'm aware that is the only example that is spoken of regularly.
If this were a very likely thing, I would think we'd have seen it happen more often.
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Re: Is it possible that the market takes more than a decade to recover?

Post by HomerJ »

It's possible... not likely but possible.

You'll just have to keep working or spend less. You've got 10 more years to save more money.
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Re: Is it possible that the market takes more than a decade to recover?

Post by secondopinion »

halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
Never short sell the market. 99.99% out of a 100%, it is the wrong thing to do.

Yes, markets can be suppressed for more than 10 years; but that is why stocks need to be longer term than 10 years as they are inherently speculative. I can stand a three year holding period for non-vital funds, but that is certainly speculative.

I never hold 100% stocks, and I never will. Having dry powder does not make any sense if the goals do not support it; and I mean real life goals such as retirement or saving or donation objectives -- not goals like beating the market.

You raise a good point; changing real life circumstances can impact the portfolio. I always design the portfolio with that in mind.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Is it possible that the market takes more than a decade to recover?

Post by blarg »

To answer the question you asked, yes it's possible. It's unlikely, but there have been 10-year periods like that in market history.

To answer the question you haven't asked, I'd recommend reading this outstanding post from nisiprius, which is itself over a decade old now: viewtopic.php?t=79939

Anxiety and worry and all that other unpleasant stuff, it's all covered in there. It has given me substantial comfort in past bad times.
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Re: Is it possible that the market takes more than a decade to recover?

Post by carminered2019 »

Possible but not likely !

nothing wrong with being 100% stock during accumulation years. Just make sure you have high saving rate, low or zero debt and remember "Buy When There's Blood In The Streets"
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halivingston
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Re: Is it possible that the market takes more than a decade to recover?

Post by halivingston »

El-Erian comes on CNBC and keeps saying the liquidity is going away and regime change in interest rate means low stocks for years to come.
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Re: Is it possible that the market takes more than a decade to recover?

Post by helloeveryone »

halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
No one can predict the future but here is what's happened in the past - pretty nice summary of historical returns since 1928 of the S&P 500, T BIlls, US Bonds, Corporate Bonds and Real Estate

https://pages.stern.nyu.edu/~adamodar/N ... retSP.html

Hopefully this year is a high earning year too and you're investing at a "discounted rate"
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Re: Is it possible that the market takes more than a decade to recover?

Post by drk »

halivingston wrote: Sun May 22, 2022 11:23 pm El-Erian comes on CNBC
You should ignore both of these.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Marseille07 »

drk wrote: Sun May 22, 2022 11:27 pm
halivingston wrote: Sun May 22, 2022 11:23 pm El-Erian comes on CNBC
You should ignore both of these.
I thought El-Erian is well respected and knows what he's talking about?
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Re: Is it possible that the market takes more than a decade to recover?

Post by drk »

Marseille07 wrote: Sun May 22, 2022 11:31 pm I thought El-Erian is well respected and knows what he's talking about?
He's noise. Like Larry Summers, he has the resume to get invited on CNBC, but little track record of actual signal.
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Re: Is it possible that the market takes more than a decade to recover?

Post by snackdog »

Almost anything is possible. Prepare accordingly.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Kookaburra »

2000-2010 was a lost decade, so yea it can and does happen.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Brianmcg321 »

Yes. Anything is possible.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Jimsad »

halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
You must have enjoyed being in 100% stocks last many years and the Huge run up
If your asset allocation truly reflects your risk tolerance, you should be feeling fine
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Re: Is it possible that the market takes more than a decade to recover?

Post by jebmke »

drk wrote: Sun May 22, 2022 11:27 pm
halivingston wrote: Sun May 22, 2022 11:23 pm El-Erian comes on CNBC
You should ignore both of these.
Lol, I listen to Bloomberg Radio sometimes when I am on a long drive. If you listen long enough, someone will come on and completely contradict everything you just heard.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Is it possible that the market takes more than a decade to recover?

Post by JoeRetire »

halivingston wrote: Sun May 22, 2022 10:41 pm Is there a possibility that the market takes more than 10 years to recover?
Of course it's possible.

It's unlikely.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Random Musings »

Yes, when adjusting for inflation it happened in the 70's and 00's. In the end, it is about purchasing power, although one can claim their personal inflation is higher or lower than the publically released one.

RM
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Re: Is it possible that the market takes more than a decade to recover?

Post by CraigTester »

halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
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Re: Is it possible that the market takes more than a decade to recover?

Post by nisiprius »

Of course it's possible. It wouldn't even be a "black swan" event.

That does not mean that gurus have any ability to predict them, nor that it is a good idea to try to dodge them.

1) It actually happened in Japan. Thirty years and still not back to even.

Image

2) In the United States, after 1929, because 1936 was one of the best years in US stock market history, the stock market just barely got back to even for three months before crashing again in 1937, -50% and about as bad as 2000-2003 or 2008-2009. It then got back to even in 1945 and entered a bull market. Thus we have the puzzle that although it is technically correct to call this two 7-year bear markets back-to-back, in most respects it was equivalent to a 14 or 15-year bear market.

3) In Morningstar's tabulation of market declines, which include dividends and are adjusted for inflation, the market had not quite fully recovered by 2008, and they therefore count Aug 2000 through May 2013 as a single almost-thirteen-year-long bear market.

4) According to the same tabulation, the second worst decline measured by their "pain index" was June 1911-December 1924, over thirteen years.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Tellurius »

Morik wrote: Sun May 22, 2022 10:49 pm Of course there is a possibility the market could take more than 10 years to recover.
There is a possibility the market could go down a whole lot and stay down for a long time.
This is part of the risk of investing in equities.

Is it very likely? I don't think it is very likely--we have seen this happen with the Japanese market, but as far as I'm aware that is the only example that is spoken of regularly.
If this were a very likely thing, I would think we'd have seen it happen more often.
Nobody talks about the Italian stock market and I don’t know why.

The Spanish stock market is similar but Italy has many more worldwide companies.

Yet after the 2000 crash it took more than 10 years to recover (I think price wise it still has not recovered?)
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Re: Is it possible that the market takes more than a decade to recover?

Post by z3r0c00l »

The stock market may never recover, you could lose another 50% and then never get it back. This is the risk in stocks, I recommend holding money in stocks that you plan to use in 20+ years. But be of good cheer, if you are asking me how long I think it will take to recover, my hunch is 1-3 years we will see all time highs again, and by the end of the decade I expect stocks to double.
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Re: Is it possible that the market takes more than a decade to recover?

Post by 3CT_Paddler »

CraigTester wrote: Mon May 23, 2022 6:24 am
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
Well said CraigTester... another way to look at it... since 1968 (54 years) approximately 50% of that time has been in extended periods with 0% real returns. We recently went through that period in the early 2000s. It would not be outside of the realm of possibilities that we go through one of those periods again in the near future.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Tellurius »

https://www.advisory.it/blog/investimen ... a-italiana

blue line is nominal price, green line is nominal price + dividends, orange line is real total return [(nominal price + dividends) /inflation)

For Italy
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Re: Is it possible that the market takes more than a decade to recover?

Post by jebmke »

Tellurius wrote: Mon May 23, 2022 6:44 am https://www.advisory.it/blog/investimen ... a-italiana

blue line is nominal price, green line is nominal price + dividends, orange line is real total return [(nominal price + dividends) /inflation)

For Italy
the infamous blue line

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Re: Is it possible that the market takes more than a decade to recover?

Post by 02nz »

Of course it's possible that the market doesn't recover for X years. I wouldn't even say it's unlikely - no one knows.

But your remark that "I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments" seems to indicate that you're young and thus still in the accumulation stage. If so, then if anything you should WANT the market to not recover rapidly, as you can buy more shares at lower prices.

The "I will need something out of my investments" part is unclear - do you mean that you'll need to take something out, or just that you want to see it grow? Again, your time horizon as a young investor should be much longer than 10 years. By far the most important asset you have right now isn't what you have already accumulated but your future earning potential.

Finally, if you can't stomach a 100% allocation even as a younger investor and even after learning more about risks inherent in the market, then it's not the right asset allocation for you. Change it to one which helps you sleep at night, but you need to stick to it.
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Re: Is it possible that the market takes more than a decade to recover?

Post by runner3081 »

The market could go to zero, shut down and we all lose all of our money. Or, it could go up 10,000% next week.
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Re: Is it possible that the market takes more than a decade to recover?

Post by Tamalak »

That would not be easy. Given a steady earnings environment but a flat market, P/E is gonna go down 1 point per year.

S&P PE is at about 20 now.. to recover fully this instant it would have to go up to 25.. to remain flat for 10 years it'd go down to 10, then recovering fully would bring it up to 13 which is very low for the modern world.

Either market forces of some kind would have to really encourage people to pull their stocks, or something harsh would have to happen to earnings.
Last edited by Tamalak on Mon May 23, 2022 9:46 am, edited 3 times in total.
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Re: Is it possible that the market takes more than a decade to recover?

Post by asif408 »

OP,

I'd say it's possible. It's much less likely with adequate diversification, especially international diversification which no one has yet mentioned. Look at the 2000-2010 period: https://www.portfoliovisualizer.com/fun ... F24%2F2010

Though international blend didn't fare much better than the US, value and small stocks had a solid decade, and sectors such as precious metals equities and US REITs all had very solid high single digit to double digit real returns. Even plain old emerging markets did very well.
They also all had poor returns in the years leading up to 2000.

I would be more nervous than a long-tailed cat in a room full of rocking chairs if 100% of my equities were in one country's stock, especially the country that had the best returns over the past decade. If you want to maximum the odds your portfolio won't go through a lost decade consider investing in at least some of last decades losers (i.e., more international and value stocks, commodity producing companies, SCV in US, etc.). Even if you don't want a lot of foreign exposure, tilting to value and/or small stocks in the US could be helpful. So far this year foreign stocks are holding up better than US stocks, and value stocks worldwide are holding up even better, with only single digit losses in most value indexes. Energy stocks are up 30% and gold miners are only down 3%. The benefits of diversification are showing up like they always have, it's just that the diversification has been a drag on a 100% US portfolio for the last decade.
Last edited by asif408 on Mon May 23, 2022 9:08 am, edited 1 time in total.
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Re: Is it possible that the market takes more than a decade to recover?

Post by livesoft »

"The Lost Decade in the Stock Market" was very recent. How old were you and were you investing from 2000 to end of 2009?

I did a google search for you and there are many 'hits', such as this one: https://www.dimensional.com/us-en/insig ... wo-decades
Annualized returns for the S&P 500 during that market period were −0.95%.
There are many such articles popping up around here in the past month or so. Maybe that is why you have started this thread? (Paywalled example: https://www.wsj.com/articles/this-could ... 1652871781)

But note: The Lost Decade included the drop, so for this next decade it would start back at the beginning of 2022 and not now after the ~20% drop.
Last edited by livesoft on Mon May 23, 2022 8:59 am, edited 1 time in total.
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Re: Is it possible that the market takes more than a decade to recover?

Post by windaar »

Very possible. That's why accurate risk assessment and corresponding AA are critical to BH investing philosophy.
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Re: Is it possible that the market takes more than a decade to recover?

Post by princetontiger »

CraigTester wrote: Mon May 23, 2022 6:24 am
halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
This is important to point out... regarding 68-83.

You have ZERO real return, but averaged 8% nominally.

Stocks preserved wealth, just as real estate did. In very high inflation, preservation matters more than appreciation.

In 1921, people thought the 1920s would be a low growth decade. In 2021, people thought the 2020s would be a high growth decade. Consensus is generally wrong and predicated on recent memory.

If we go through the 2020s digesting the past decade (I don't think we do, I think we march higher starting later in the year), then compounding will be absolutely incredible when returns pick back up in the 2030s.
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Re: Is it possible that the market takes more than a decade to recover?

Post by greg24 »

halivingston wrote: Sun May 22, 2022 11:23 pmEl-Erian comes on CNBC and keeps saying the liquidity is going away and regime change in interest rate means low stocks for years to come.
This is all short term noise. The worst thing you can do is base your investing decisions on the opinion of CNBC talking heads.

This event appears to show that 100% stocks is not the correct allocation for you. You should consider adding fixed income to your AA.

The market going down is a great time to buy. Just keep buying.
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Re: Is it possible that the market takes more than a decade to recover?

Post by HMSVictory »

Possible - yes

Probable - no

If you are the accumulation phase you should pray for a "lost decade" as your future returns will look fantastic!
Stay the course!
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Re: Is it possible that the market takes more than a decade to recover?

Post by HMSVictory »

princetontiger wrote: Mon May 23, 2022 8:59 am
CraigTester wrote: Mon May 23, 2022 6:24 am
halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
This is important to point out... regarding 68-83.

You have ZERO real return, but averaged 8% nominally.

Stocks preserved wealth, just as real estate did. In very high inflation, preservation matters more than appreciation.

In 1921, people thought the 1920s would be a low growth decade. In 2021, people thought the 2020s would be a high growth decade. Consensus is generally wrong and predicated on recent memory.

If we go through the 2020s digesting the past decade (I don't think we do, I think we march higher starting later in the year), then compounding will be absolutely incredible when returns pick back up in the 2030s.
I concur. Also another common mistake is to look at a time period like the late 60s to early 80s and say the Dow went nowhere.

This is an incomplete analysis as you were paid 4-6% dividends the entire time and if you retired at the exact worst time you could still live off of the 4% rule and be exactly where you started (2 decades later) though in real terms your portfolio is worth less.
Stay the course!
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HomerJ
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Re: Is it possible that the market takes more than a decade to recover?

Post by HomerJ »

Marseille07 wrote: Sun May 22, 2022 11:31 pm
drk wrote: Sun May 22, 2022 11:27 pm
halivingston wrote: Sun May 22, 2022 11:23 pm El-Erian comes on CNBC
You should ignore both of these.
I thought El-Erian is well respected and knows what he's talking about?
No one, and I mean, no one, has been very good at predicting the stock market or even economic trends in general.

No matter how well respected. So don't put too much faith in anyone's predictions.
In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess"
Shiller expresses scepticism about the value of forecasting - particularly economic forecasting. He points out that in the past, attempts at forecasting were much more likely to be dismissed as mere opinion.

'One thing I've noticed about history, you can search on newspapers going back hundreds of years, search for "economic forecast", you don't find it. It would be very rare to find it,' he says.

'Why didn't newspapers publish economic forecasts? Well, I think that maybe they had the right attitude. Forecast sounds scientific, right? They used to think "well, it's a matter of opinion, you know". And they didn't tabulate the mean opinion of analysts because they would think, I'm guessing, "what's the point of that, they don't know, it's just opinions".'

Shiller also suggests that misplaced faith in 'economic science' could be one of the reasons we stumbled into the financial crisis.

'I think part of the reason we got into this crisis is that we had an impression that economic science was more of a science than it really is and there was a sense that central banks had learned how to stabilise everything.
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abc132
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Re: Is it possible that the market takes more than a decade to recover?

Post by abc132 »

The question should not be if the market can be down for a decade. The relevant question should be if you continue to add periodic amounts according to your plan whether you will be down after a decade. The two questions can be quite different, as anything you add while the market is down has a positive return by the time the market gets back to the prior peak.
alfaspider
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Re: Is it possible that the market takes more than a decade to recover?

Post by alfaspider »

CraigTester wrote: Mon May 23, 2022 6:24 am
halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
I would caution against using specific fixed time slices like "March- January 2013." Almost nobody just lump sums in at the peak and then invests nothing for a decade. If you were continuing to contribute through the downturn, you would have earned some very nice returns from money put in during the troughs. If you were unlucky enough to retire right before such a period, your lifetime returns during your working years would have been healthy. But it's a reminder not to assume high returns in retirement. Still, a retiree with a 3% withdrawal rate would still have been fine throughout any period.
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arcticpineapplecorp.
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Re: Is it possible that the market takes more than a decade to recover?

Post by arcticpineapplecorp. »

can't remember where I got this, but looks like there's a possibility of a negative return over 10 years:

Image

and Ben Carson's article shows a 5% chance:
https://awealthofcommonsense.com/2019/0 ... ndefeated/

here's another article by Dana Anspach using rolling timeframes and she found:
The S&P 500 Index, shown in bright red, delivered its worst ten-year return of -3% a year over the ten years ending in February 2009.

https://www.thebalance.com/rolling-inde ... ns-4061795
here's another article:
If you want to reduce the chance of a negative return over 10 years to 0 put some bonds in the mix.

hope that helps.
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abc132
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Re: Is it possible that the market takes more than a decade to recover?

Post by abc132 »

alfaspider wrote: Mon May 23, 2022 10:26 am
CraigTester wrote: Mon May 23, 2022 6:24 am
halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
I would caution against using specific fixed time slices like "March- January 2013." Almost nobody just lump sums in at the peak and then invests nothing for a decade. If you were continuing to contribute through the downturn, you would have earned some very nice returns from money put in during the troughs. If you were unlucky enough to retire right before such a period, your lifetime returns during your working years would have been healthy. But it's a reminder not to assume high returns in retirement. Still, a retiree with a 3% withdrawal rate would still have been fine throughout any period.
I would also caution against not including dividends. The Mar 2000 - Jan 2013 example actually recovered in less than 10 years with dividends and had a 40% higher balance by Jan 2013. I'm using VFIAX and portfolio visualizer to look at returns. I didn't bother with the other periods, but I'm sure the numbers are equally unrepresentative.
Last edited by abc132 on Mon May 23, 2022 10:46 am, edited 2 times in total.
JonFund
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Re: Is it possible that the market takes more than a decade to recover?

Post by JonFund »

It's definitely possible. It took the S&P500 index 16 years to break out of it's 1966 high of 990. The concerning thing is, that period was marked by stagflation; rising interest rates, inflation, and a sluggish economy. Not unlike what we are seeing currently. We've had numerous recessions and market corrections over the last 40 years, but the one thing we haven't seen until now is inflation on a sizeable scale.
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princetontiger
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Re: Is it possible that the market takes more than a decade to recover?

Post by princetontiger »

The 70s gets a bad rap because I think the Dow did go nowhere, however, the S&P 500 did not. In any case, owning SPY or VTI would perform fine, although there were a few stomach churning moments.

Also, speaking to my late grandfather many years ago regarding the 70s, cash yielded about 8%. So, while the dollar's value got shredded, most people with money in the bank kept their purchasing power... maybe 90% of it. However, high unemployment plagued that period as well.

We have mild stagflation, but nothing like the 70s. Since cash can't compete with real estate or equities today, I expect stocks to surge once the Nasdaq readjusts to a world without free money. Real estate already made a massive move, so not sure there's any returns left over the next couple years. We might even see some softening.

It should be noted that emerging markets and developed ex-US markets are very cheap today and back to pre-covid trend. US markets are getting close.
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mrspock
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Re: Is it possible that the market takes more than a decade to recover?

Post by mrspock »

Not likely. In 2000 it took four years to hit a PE of 20 from 46. We got to 20 from 40 in about 18 months (source: https://www.multpl.com/s-p-500-pe-ratio/table/by-month).

Obviously more variables at play, but I sincerely doubt 10 years is likely.
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HomerJ
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Re: Is it possible that the market takes more than a decade to recover?

Post by HomerJ »

CraigTester wrote: Mon May 23, 2022 6:24 am The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.
Something that is important to remember...
halivingston wrote: Sun May 22, 2022 10:41 pm2021 was my highest earning year and I put in as much as I can.
All those 0% real return periods in the past are very dependent on start date. Just as a point of comparison.

March 1996 - Jan 2013 returned 4.5% real (7% nominal)
March 1997 - Jan 2013 returned 3.65% real (6% nominal)
March 1998 - Jan 2013 returned 2% real (4.4% nominal)
March 1999 - Jan 2013 returned 1.26% real (3.7% nominal)
March 2000 - Jan 2013 returned 0% real (2.4% nominal)

And the OP is still accumulating. And saving more than ever.

Yes, March 2000 - Jan 2013 returned 0% real.

But if one kept investing, you didn't get 0% real on the money invested DURING that period.

March 2000 - Jan 2013 returned 0% real (2.4% nominal)
March 2001 - Jan 2013 returned 1.68% real (4% nominal)
March 2002 - Jan 2013 returned 2.77% real (5.2% nominal)
March 2003 - Jan 2013 returned 6% real (8.4% nominal)
March 2004 - Jan 2013 returned 2.70% real (5.2% nominal)
March 2005 - Jan 2013 returned 2.46% real (4.8% nominal)
March 2006 - Jan 2013 returned 1.87% real (4% nominal)
March 2007 - Jan 2013 returned 0.65% real (2.7% nominal)
March 2008 - Jan 2013 returned 2.52% real (4.2% nominal)
March 2009 - Jan 2013 returned 19.66% real (22.1% nominal) <--- This isn't just that one year - you made 19.66% real every year from 2009-2013
March 2010 - Jan 2013 returned 9.7% real (12% nominal)


So yeah, not a great 13 years from 2000-2013, but not 0% on all your new money either.

And accumulating during the bad years, so far, in U.S. history, has totally paid off in the following good years.

Because all that money you saved from 2000-2013, has grown 11% real every year since to today (13.70% nominal)

$1 million saved by 2000 would be worth $1 million in 2013, yes (in real terms - nominally it grew to $1.36 million)

But if you saved $50k a year for the next 10 year (another $500,000), your money had grown to $1.69 million in real terms (nominal $2.285 million)

Portfolio Visualizer reports that your return over those 13 years was 4.17% real (6.6% nominal).

So the 13 years of 0% real, if you were still accumulating as described above actually returned 4.17% real.

And then from 2013-2022, that money grew to $6.1 million in real terms (nominal $7.6 million).

See, that's the crazy part... yes there was 10 low return years there from 2000-2010... and it took until 2013 to break even on all the money you had invested up to March 2000... But the bad years were followed by good years.

And saving $1 million by 2000, and then investing another $50,000 a year until 2010, still grew to nearly $2.3 million nominal by 2013, and 9 years later it was worth $7.6 million nominal.

Crazy!

You can go to portfolio visualizer and put your own numbers in and see what would have happened from 2000-today.

All of us who saved diligently through 2000-2010, saw all the money grow far beyond our expectations in the following years.

Stock market, so far, runs in cycles. Good years are followed by bad years are followed by good years, and on.

No guarantee the future will be the same, but it's likely.

We may indeed have a bad 10 years ahead of us... Maybe more... But then it will probably be followed by a bunch of good years and it will all balance out.

The trickiest part is right before and right as you retire... You want to have some money in safer assets if you are retiring right before a bad period.

But if you can work another 10 years and keep saving large amounts of money, a bad period right now won't hurt you too much.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
CraigTester
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Re: Is it possible that the market takes more than a decade to recover?

Post by CraigTester »

abc132 wrote: Mon May 23, 2022 10:42 am
alfaspider wrote: Mon May 23, 2022 10:26 am
CraigTester wrote: Mon May 23, 2022 6:24 am
halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
I would caution against using specific fixed time slices like "March- January 2013." Almost nobody just lump sums in at the peak and then invests nothing for a decade. If you were continuing to contribute through the downturn, you would have earned some very nice returns from money put in during the troughs. If you were unlucky enough to retire right before such a period, your lifetime returns during your working years would have been healthy. But it's a reminder not to assume high returns in retirement. Still, a retiree with a 3% withdrawal rate would still have been fine throughout any period.
I would also caution against not including dividends. The Mar 2000 - Jan 2013 example actually recovered in less than 10 years with dividends and had a 40% higher balance by Jan 2013. I'm using VFIAX and portfolio visualizer to look at returns. I didn't bother with the other periods, but I'm sure the numbers are equally unrepresentative.
All time periods above include dividends, inflation adjusted.
Marseille07
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Re: Is it possible that the market takes more than a decade to recover?

Post by Marseille07 »

Tamalak wrote: Mon May 23, 2022 8:46 am That would not be easy. Given a steady earnings environment but a flat market, P/E is gonna go down 1 point per year.

S&P PE is at about 20 now.. to recover fully this instant it would have to go up to 25.. to remain flat for 10 years it'd go down to 10, then recovering fully would bring it up to 13 which is very low for the modern world.

Either market forces of some kind would have to really encourage people to pull their stocks, or something harsh would have to happen to earnings.
Where do you get the idea that PE goes down 1 point per year? Are you talking about CAPE (PE10)?
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HomerJ
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Re: Is it possible that the market takes more than a decade to recover?

Post by HomerJ »

abc132 wrote: Mon May 23, 2022 10:42 am
alfaspider wrote: Mon May 23, 2022 10:26 am
CraigTester wrote: Mon May 23, 2022 6:24 am
halivingston wrote: Sun May 22, 2022 10:41 pm I'm 100% invested (3 months expenses in t-bills) in VTI. The decline has been painful, primarily because 2021 was my highest earning year and I put in as much as I can.

Is there a possibility that the market takes more than 10 years to recover?

I say 10 years because, it is a long enough time horizon that my family situation will have changed, and I will need something out of my investments, but also that markets can decline for extended periods of time.

I ask this question because perhaps, being 100% invested has been foolish and I should've kept some dry powder that I could have deployed, perhaps something in BND, but I didn't, my bad.

Due to the nature of my accounts, I'm unable to take shorts or be reverse the market to protect capital.
The SP500 had a real return of about 6.5% per year over the very long term.

However, the following are periods where the real return was zero.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

High valuations preceded all of these periods. We currently have high valuations, despite declining 19% since Jan 3, 2022.

It’s arguably impossible to predict what will happen in the next few years, but returns are negatively correlated to high valuations in the long term.

Now, what you do with these facts is a different question. BH advise to just buy n hold n rebalance. Others implement various timing strategies.

Both approaches can work if executed well, but the former is simpler; and you’ll have a lot more company.

There is also somewhat of a red team versus blue team mentality between the two approaches. Arguably this is silly as one doesn’t need to be wrong for the other to be right, in the long term. But there will be many I-told-you-so-moments along the way for both sides.

Most importantly, don’t change horses in the middle of the stream.

Good luck,
CraigTester
I would caution against using specific fixed time slices like "March- January 2013." Almost nobody just lump sums in at the peak and then invests nothing for a decade. If you were continuing to contribute through the downturn, you would have earned some very nice returns from money put in during the troughs. If you were unlucky enough to retire right before such a period, your lifetime returns during your working years would have been healthy. But it's a reminder not to assume high returns in retirement. Still, a retiree with a 3% withdrawal rate would still have been fine throughout any period.
I would also caution against not including dividends. The Mar 2000 - Jan 2013 example actually recovered in less than 10 years with dividends and had a 40% higher balance by Jan 2013. I'm using VFIAX and portfolio visualizer to look at returns. I didn't bother with the other periods, but I'm sure the numbers are equally unrepresentative.
I think he included dividends... He was talking about real return, not nominal... Yes, nominally VFIAX grew 40%, but dividends and inflation over those years canceled each other out.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Tamalak
Posts: 1989
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Re: Is it possible that the market takes more than a decade to recover?

Post by Tamalak »

Marseille07 wrote: Mon May 23, 2022 11:30 am
Tamalak wrote: Mon May 23, 2022 8:46 am That would not be easy. Given a steady earnings environment but a flat market, P/E is gonna go down 1 point per year.

S&P PE is at about 20 now.. to recover fully this instant it would have to go up to 25.. to remain flat for 10 years it'd go down to 10, then recovering fully would bring it up to 13 which is very low for the modern world.

Either market forces of some kind would have to really encourage people to pull their stocks, or something harsh would have to happen to earnings.
Where do you get the idea that PE goes down 1 point per year? Are you talking about CAPE (PE10)?
If a stock is $20 and its earnings is $1, that's a PE of 20.
PE of 20 implies inflation adjusted gain of 5%.
So if things go exactly as expected for the company, earnings will increase to $1.05 (whether it compounds through expansion, the company purchasing securities, buybacks, or just dividends that the owner reinvests in more shares.)
If the market is flat, the stock will still be $20 so PE will be 20/1.05 ~= 19
PE goes down by 1. This works for any starting PE except for very low numbers at which point it starts to distort.
Marseille07
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Re: Is it possible that the market takes more than a decade to recover?

Post by Marseille07 »

Tamalak wrote: Mon May 23, 2022 11:35 am If a stock is $20 and its earnings is $1, that's a PE of 20.
PE of 20 implies inflation adjusted gain of 5%.
So if things go exactly as expected for the company, earnings will increase to $1.05 (whether it compounds through expansion, the company purchasing securities, buybacks, or just dividends that the owner reinvests in more shares.)
If the market is flat, the stock will still be $20 so PE will be 20/1.05 ~= 19
PE goes down by 1. This works for any starting PE except for very low numbers at which point it starts to distort.
Thanks, I guess what I don't understand is this part: "PE of 20 implies inflation adjusted gain of 5%." Why does PE of 20 imply inflation adjusted gain of 5%?
Tamalak
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Re: Is it possible that the market takes more than a decade to recover?

Post by Tamalak »

Marseille07 wrote: Mon May 23, 2022 11:41 am
Tamalak wrote: Mon May 23, 2022 11:35 am If a stock is $20 and its earnings is $1, that's a PE of 20.
PE of 20 implies inflation adjusted gain of 5%.
So if things go exactly as expected for the company, earnings will increase to $1.05 (whether it compounds through expansion, the company purchasing securities, buybacks, or just dividends that the owner reinvests in more shares.)
If the market is flat, the stock will still be $20 so PE will be 20/1.05 ~= 19
PE goes down by 1. This works for any starting PE except for very low numbers at which point it starts to distort.
Thanks, I guess what I don't understand is this part: "PE of 20 implies inflation adjusted gain of 5%." Why does PE of 20 imply inflation adjusted gain of 5%?
If my egg laying chicken costs $20 and lays a $1 egg per year, I make 5% a year.
If inflation is 2% for that year then both chicken and eggs go up in price 2%, which means my net worth does too, on top of the 5% return for the egg. I end up with 5% real return and 7% nominal.

Historical PE has averaged about 17. It is no coincidence that historical returns have averaged about 6% real (1 / 17)
Last edited by Tamalak on Mon May 23, 2022 12:01 pm, edited 1 time in total.
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