"In a recent survey of 750 US individual investors, Natixis Investment Managers found these people expect to earn 17.3% this year, after inflation.""That might not sound like pie in the sky. The S&P 500 returned 18.4% last year, counting dividends, and is up 15.9% so far in 2021. Recent past returns always mold future expectations."Over the long run, however, the people in the Natixis survey anticipate earning an average of 17.5% annually, after inflation — even higher than for this year. That's up from the 10.9% long-term return they expected in 2019, the previous round of the survey."It's also more than twice the return on US stocks since 1926, which has averaged 7.1% annually after inflation. It's more than triple their 5.3% return over the same period after both inflation and taxes, according to Morningstar."
"It's worth remembering that air-pockets, panics, and crashes typically reflect a depressed and inadequate risk premium being driven higher. No other 'catalyst' is needed but a brief bout of risk-aversion or profit-taking that nicks overleveraged investors enough to provoke a concerted and self-reinforcing attempt to exit."Later on, Hussman explains how the S&P 500 Index could wind up being flat over the next 20 years. It would be an interesting (but ultimately unsatisfying) journey that could include several bear markets and several powerful rallies:"Given that the market can go from extreme overvaluation to undervaluation even over a small number of years, the long-term prospects of the market could look vastly stronger even a couple of years from today. So, keep in mind that these statements all reflect the starting point of current valuation extremes."From this particular starting point, I expect that the S&P 500 will go nowhere for something approaching 20 years."I realize that the last sentence was accompanied by a collective 'pffft' of spit-takes, followed by the spray of coffee on computer screens everywhere. About 80% of those spit-takes were probably accompanied by incredulous laughter, and about 20% by the recognition, among those who understand market history, that I'm completely serious."Presently, the valuation measures we find best-correlated with actual subsequent S&P 500 total returns across history stand at 3.7 times their run-of-the-mill norms. Let's ignore that the market has also spent half of its time below those run-of-the-mill norms."
- You are contrarian;
- You are willing to look in areas of the market where few tread;
- You can identify stocks that are priced low relative to the free cash flow they can generate in the long run; and
- You have portfolio hedges including cash and carefully selected put option positions to limit portfolio losses during crashes and bear markets.