“Consider this: Prof. Dimson estimates that we’ll have to wait nine more years before the Dow average, including dividends, has a 50% chance of hitting its 2007 highs.”
Does he mean that there’s a 50% chance that the Dow will reach its 2007 high within 9 years (including dividends)? (If so, that’s a very poorly worded sentence.) If so, that seems mildly aggressive (although perhaps achievable). It means annual appreciation of 8% plus a dividend yield of 3%, or roughly 11% annualized from here. It seems like that’s Dimson’s “base case.” If so, I think that’s too high. Using the S&P 500, if normalized earnings are $60 and grow at 5% annualized for 9 years, we get to 1303 on the S&P (with a 14x EPS multiple). That would be an annualized nominal return of 9.3% including dividends. I think that would be pretty good, actually, so long as inflation averages less than 4% or so over the time period (not a given, of course).
Ah, re-reading a little, I see:
“Nor are Prof. Dimson’s findings quite as discouraging as they sound at first. If there’s an even chance that the Dow will nearly double in nine years, that implies a total return of 7.1% per year, which isn’t exactly chicken feed.”
Actually, this math is wrong. 7.1% is the return (excluding dividends) if the Dow doubles in TEN years; it’s 8% if it doubles in nine years.
I see nothing particularly “startling” in this article.
