The Most Important Number Not Printed in the WSJ
2 Pages Posted: 16 Oct 2018 Last revised: 10 Jul 2019
Date Written: August 30, 2018
We are often asked for our estimate of the long-term return of the equity market. Our framework currently indicates 5.3% above inflation for global equities, which we know strikes many investors as high. This is understandable, given that the most available and frequently cited valuation ratio – the S&P500’s CAPE – currently stands at about 30, which is higher than it’s been 96% of the time since 1900 and far above its average level of about 17. In this note we describe our estimation methodology.
Keywords: Decision Making Under Uncertainty, Risk, Utility, Risk Aversion, Coin Flip, Heuristics, Rules of Thumb, Market Timing, Gambling, Betting, Manager Selection, Sharpe Ratio, Mutual Funds, Data Mining, Conditional Return
JEL Classification: B12, B16, B20, C00, C10, C11, C50, C57, C73, D03, D81, D83, E00, G00, G02, G11, G12, G14, G17, G23
Suggested Citation: Suggested Citation