1%

The Butler, Philbrick, and Gordillo crew has been putting out some great research lately.  (And no I’m not just saying that since we did a white paper together:  Global CAPE Model Optimization.)

From the paper: “Finally, at the bottom of the above matrix we show the forecast returns over each future horizon based on our best-fit multiple regression from the factors above. From the matrix, note that the best forecast for future real equity returns integrating all available valuation metrics is 1% or less per year over horizons covering the next 5 to 20 years. We also provided the R-squared for each multiple regression underneath each forecast; you can see that at the 15-year forecast horizon, our regression explains 80% of total returns to stocks.”

1% real for my investing lifetime?  Ugh.

Below are a few quotes and charts before the download:

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This study contributes substantially to research on smoothed earnings and Shiller PE by adding three new valuation indicators: the Q-Ratio, total market capitalization to GNP, and deviations from the long-term price trends. The Q-Ratio measures how expensive stocks are relative to the replacement value of corporate assets. Market capitalization to GNP accounts for the aggregate value of U.S. publicly traded business as a porportion of the size of the economy. In 2001, Warren Buffett wrote an article in Fortune where he states, “The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment.” Lastly, deviations from the long-term trend of the S&P inflation adjusted price series indicate how ‘stretched’ values are above or below their long-term averages.

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Download

Valuation Based Equity Market Forecasts – Q1 2013 Update

Website

http://gestaltu.blogspot.ca/