Thursday, September 22, 2016 8:51 AM EST
This is my quarterly update on how much the market is likely to return over the next 10 years. At the end of the last quarter, that figure was around 6.54%/year. For comparison purposes, that is at the 77th percentile of outcomes — high, but not nosebleed high, which to me, is when the market is priced to return 3% or less. That’s when you run.
Adding in quarter to date movements, the current value should be near 6.3%/year (79th percentile).
With all of the hoopla over how high the market is, why is this measure not screaming run? This is because average investors, retail and institutional, are not as heavily invested in the equity markets as is typical toward the end of bull markets. There are many articles calling for caution — I have issued a few as well.
From an asset-liability management standpoint, bull markets get particularly precarious when caution is thrown to the wind, and people genuinely believe that there is no alternative to stocks — that you are missing out on “free money” if you are not invested in stocks.
We aren’t there now. So, much as I am not crazy about the present state of the credit cycle (debts rising, income falling), there is still the reasonable possibility of more gains in the stock markets.
Full disclosure: None.
Disclaimer: David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to ...
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Full disclosure: None.
Disclaimer: David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.
Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.
Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.
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Thanks for sharing