As we move into 2016, just about every pundit in the world is offering his or her prediction on how stocks will fare over the coming year. But in a recent piece for Canada’s Globe and Mail, Validea CEO John Reese says those predictions are essentially worthless.
“That’s because so many factors go into short-term market movements that no one has found a way to reliably predict them,” Reese writes. “Not that they haven’t tried. In his 1984 classic Super Stocks, Kenneth Fisher wrote that people have attempted to divine market movements using astrology, demographic studies, sunspots, economics, technical analysis, tea leaves, and even ‘the skin of a dried lizard at sunset cast to the wind.’ But, Mr. Fisher said, while a forecaster might have a good of couple years, no one has found a way to consistently predict short-term market movements – and that still holds true.”
But, Reese says, longer-term projections do have some benefit. “Legendary Vanguard founder Jack Bogle, for example, has found that just three factors go a long way toward predicting where the market will be 10 years out,” he writes. “The first two of Mr. Bogle’s factors are dividend yield and corporate earnings growth, which comprise what he calls the ‘investment return,’ because they are determined by fundamentals. The third is ‘speculative return’ – that is, the change in what investors are willing to pay for each dollar of earnings (in other words, whether the market’s price-to-earnings ratio is rising or falling).”
Right now, that projected investment return is about 7%, Reese says, though he notes that a percentage point or two could be clipped from that if valuations come back down to historical norms. Reese takes a look at three stocks that he thinks are offering better-than-average opportunities. Among them: RV maker Thor Industries
Tagged: Jack Bogle, John P. Reese, Validea
from Validea's Guru Investor Blog http://ift.tt/1VQgo1L
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