Comments on: The Fundamental Case for the 20,000 Dow http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/?utm_source=rss&utm_medium=rss&utm_campaign=the-fundamental-case-for-the-20000-dow The AllianceBernstein Blog on Investing Wed, 22 May 2013 07:20:14 +0000 hourly 1 http://wordpress.org/?v=3.4.1 By: Seth Masters http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-15403 Seth Masters Wed, 22 Aug 2012 13:15:45 +0000 http://blog.alliancebernstein.com/?p=2465#comment-15403 We do believe in reversion to the mean, which implies that profit margins should decline from current high levels and P/E ratios should rise from the current below-average levels. The net effect should be to help move the Dow towards the 20,000 mark over the next 5-10 years (we’ll send you a copy of our research paper to give some more background on our thinking.) We also agree that long-term data are important--we’ve done studies that go back to 1900 and even earlier, which we think support our conclusions. Finally, market volatility is definitely a concern, and it should continue to be a factor in investment decisions. But investors shouldn’t fall into the trap of overloading on bonds trying to minimize volatility in the short term, because that’s not a sound long-term investment strategy, particularly with today''s ultra-low bond yields. We recommend balancing the short-term risk of market fluctuations with the long term risk of prematurely running out of money. And that is why maintaining an appropriate allocation to equities is vital. We do believe in reversion to the mean, which implies that profit margins should decline from current high levels and P/E ratios should rise from the current below-average levels. The net effect should be to help move the Dow towards the 20,000 mark over the next 5-10 years (we’ll send you a copy of our research paper to give some more background on our thinking.) We also agree that long-term data are important–we’ve done studies that go back to 1900 and even earlier, which we think support our conclusions.

Finally, market volatility is definitely a concern, and it should continue to be a factor in investment decisions. But investors shouldn’t fall into the trap of overloading on bonds trying to minimize volatility in the short term, because that’s not a sound long-term investment strategy, particularly with today”s ultra-low bond yields. We recommend balancing the short-term risk of market fluctuations with the long term risk of prematurely running out of money. And that is why maintaining an appropriate allocation to equities is vital.

]]> By: Seth Masters http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-15316 Seth Masters Tue, 21 Aug 2012 15:20:14 +0000 http://blog.alliancebernstein.com/?p=2465#comment-15316 Bill Gross’s scenario is certainly possible, but not very likely, in our opinion—for the reasons I outlined in the blog. Bill Gross’s scenario is certainly possible, but not very likely, in our opinion—for the reasons I outlined in the blog.

]]> By: Josh Elliot http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-15252 Josh Elliot Mon, 20 Aug 2012 18:11:48 +0000 http://blog.alliancebernstein.com/?p=2465#comment-15252 If you believe in reversion to the mean, then how can the rest of your analysis not be affected by that? Additionally, why use statistics dating to 1947? Given that we are in a credit crisis driven market, shouldn''t we incorporate data from 1900 forward? It seems the traditional business cycles we have experienced since 1947 and therefore their fundamental statistics would not necessarily be a great gauge for today''s situation. Additionally, what about the likelihood of greater economic volatility (multiple recessions during a credit crisis) and that affect on P/E and any fundamental argument to get the DOW to 20,000? If you believe in reversion to the mean, then how can the rest of your analysis not be affected by that? Additionally, why use statistics dating to 1947? Given that we are in a credit crisis driven market, shouldn”t we incorporate data from 1900 forward? It seems the traditional business cycles we have experienced since 1947 and therefore their fundamental statistics would not necessarily be a great gauge for today”s situation. Additionally, what about the likelihood of greater economic volatility (multiple recessions during a credit crisis) and that affect on P/E and any fundamental argument to get the DOW to 20,000?

]]> By: Rich Robb http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-15204 Rich Robb Sun, 19 Aug 2012 17:19:51 +0000 http://blog.alliancebernstein.com/?p=2465#comment-15204 Extremely well reasoned. But so is a recent B Gross report which arrives at a different conclusion. His factors are not doubt a bit different but I don''t think that''s why his conclusion is different. Help us reconcile two well reasoned outcomes re stock values over the middle/long term Extremely well reasoned. But so is a recent B Gross report which arrives at a different conclusion. His factors are not doubt a bit different but I don”t think that”s why his conclusion is different. Help us reconcile two well reasoned outcomes re stock values over the middle/long term

]]> By: Seth Masters http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-15056 Seth Masters Fri, 17 Aug 2012 13:40:55 +0000 http://blog.alliancebernstein.com/?p=2465#comment-15056 Thanks for the compliments. We believe in mean reversion, too. Thanks for the compliments. We believe in mean reversion, too.

]]> By: Jeff McClure http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-15005 Jeff McClure Thu, 16 Aug 2012 18:43:28 +0000 http://blog.alliancebernstein.com/?p=2465#comment-15005 Absolutely superb reasoning! Anyone who so agrees with my analysis, right down to the expected return of the S&P 500, must be a truly brilliant person! You did leave out that powerful force known as "reversion to the mean." Using long-term, inflation adjusted, real total returns, it would be reasonable to see an above average total return on the equity side of the market over the next ten years or so. At the same time, bonds have some down-side reversion coming to them. Oddly, if one ignores earnings and only uses long-term real returns, and then includes 2.25% inflation over the next decade, the expected numbers come out almost exactly the same. Absolutely superb reasoning! Anyone who so agrees with my analysis, right down to the expected return of the S&P 500, must be a truly brilliant person!

You did leave out that powerful force known as “reversion to the mean.” Using long-term, inflation adjusted, real total returns, it would be reasonable to see an above average total return on the equity side of the market over the next ten years or so. At the same time, bonds have some down-side reversion coming to them. Oddly, if one ignores earnings and only uses long-term real returns, and then includes 2.25% inflation over the next decade, the expected numbers come out almost exactly the same.

]]> By: Seth Masters http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-14937 Seth Masters Wed, 15 Aug 2012 21:28:46 +0000 http://blog.alliancebernstein.com/?p=2465#comment-14937 Thank you! I''m glad it helped and reassured you. Thank you! I”m glad it helped and reassured you.

]]> By: Thomas Rekdal http://blog.alliancebernstein.com/index.php/2012/08/13/the-fundamental-case-for-the-20000-dow/#comment-14867 Thomas Rekdal Tue, 14 Aug 2012 22:57:36 +0000 http://blog.alliancebernstein.com/?p=2465#comment-14867 An exceptionally clear analysis and explanation. Also, I might add, rather reassuring, because I am an exceedingly patient investor. An exceptionally clear analysis and explanation. Also, I might add, rather reassuring, because I am an exceedingly patient investor.

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