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26. What History Tells Us

hocus| 05-04-06 | 09:24 AM

Stocks may actully return 10% over the next 20 years or they may just as likely return 4%.

I think it helps to put numbers to these things and to speak in terms of real returns.

Starting from today's valuations, the most likely 20-year return for the S&P is 2.6 percent (this is a real, annualized return). The lowest possible return (only a 5 percent chance, according to the historical data) is a negative 1.4 percent. The highest possible return (again, only a 5 percent chance, according to the historical data) is 6.6 percent.

Rob

This Diehard challenges hocus . . .

27. Hocus #26

YARIE| 05-04-06 | 09:54 AM

Starting from today's valuations, the most likely 20-year return for the S&P is 2.6 percent (this is a real, annualized return). The lowest possible return (only a 5 percent chance, according to the historical data) is a negative 1.4 percent. The highest possible return (again, only a 5 percent chance, according to the historical data) is 6.6 percent.

Come on! Don't pretend that you have some formula that gives these exact "5%" probabilities for predicting future returns up to one decimal digit (2.6%, not 2.5% of course... and then 6.6% and not 6.7% an so on...). This is so ridiculous! Do you know how many things can happen in the coming 20 years, making all these calculations worthless??

<snip>

And hocus replies . . .

28. Slightly More Likely

hocus| 05-04-06 | 10:06 AM

2.6%, not 2.5% of course... and then 6.6% and not 6.7% an so on...

2.6 is slightly more likely than 2.5 percent, according to the historical data. Time will of course tell the tale as to which number actually pops up.

Rob

To which YAIRE asks . . .

29. Rob - #28

YARIE| 05-04-06 | 10:10 AM

Can you please elaborate more on your calculation of the expected 20 years return?

Thanks,

Yarie

Yarie is still waiting for an answer from hocus . . .

33. Rob - indeed there is no formula?

YARIE| 05-05-06 | 08:59 AM

Since you haven't responded regarding explaining your calculations is #26, people might suspect that no serious formula is involved or that the formula cannot resist the readers scrutiny. I would like to be proved wrong...