Bogle on The Next Decade

In an interview with Nightly Business Report, Vanguard founder John Bogle says he expects stocks to return an average of about 8% per year for the next decade, and adds that U.S. stocks may be a bit undervalued, with international markets a bit overdone.

Bogle tells Susie Gharib that he doesn’t do one-year market forecasts because the market is too unpredictable in the short term. “But I do in my new book do an outlook for the decade,” he says. “And I believe that stocks will return something like 7 to 9 percent during the coming decade, because the dividend yield is 2 percent today … a little above that and earnings growth should be around six. So that would give us an 8 percent business return to underpin the market. So I think that’s a reasonable expectation for stocks in the coming decade. Whether they get any of that this coming year, who knows.”

Bogle also says the recent crisis has shown that investors are their own worst enemies, making decisions based on short-term, recent performance. He estimates that about 90% of mutual fund inflows in 2009 went to bonds; investors who focused on bonds missed out on the huge stock market rally. And when it came to stock funds, he said investors on the whole have put money into international funds, but taken money out of U.S. funds. “So I would regard that as … a sign that maybe international is getting overdone and U.S. markets are a little bit undervalued,” he said.

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Fisher Sees “Well Above Average” Returns for 2010

In his latest Forbes column, Ken Fisher says that he thinks stocks will continue to produce above average returns in 2010, though the gains won’t be as great as they’ve been in 2009.

Fisher says the huge ’09 rebound “was a textbook case of how markets are supposed to react to big bear markets and recessions”, with a V-type recovery occurring. “I’m betting 2010 will work out the way markets usually do in the second year after a big bear market,” he says, “with returns not as high as 2009’s but well above average.”

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No “New Normal”, but More Frequent Recessions, Says Top Forecaster

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, says the U.S. economy will not enter a “new normal” of slow, anemic growth, but also says we’re headed for a period of more frequent recessions and “chronically high” jobless rates. Achuthan, whose group has a strong track record of forecasting economic movements, also tells Bloomberg that the near-term outlook for the economy is good, with no “double-dip” recession being imminent. And, he talks about the impact that more frequent recessions will have on buy-and-hold investors.

Guru Strategy Ratings: Several Stocks on the Move

Each week, I take a look at which stocks my Validea.com Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks that my strategies have upgraded or downgraded today.



Siegel: Stocks Still Undervalued

Jeremy Siegel, the Wharton professor and Stocks for the Long Run author, thinks stocks remain undervalued, and says he expects US corporations to be producing record earnings by 2011 or 2012.

In an interview with Advisor Perspectives, Siegel says he thinks fair value for the S&P 500 is 1300-1350, if current interest rates persist. He thinks rates will rise, however, so he puts fair value closer to 1250 for the index, which started the day at about 1129.

And, Siegel says those interest rates will rise sooner than many think. He expects the Federal Reserve to up rates in the first half of 2010 as the economy strengthens, which could briefly rattle the stock market. “There will be a short-term shock, maybe even a 10% downward reaction as people say ‘oh my God, the Fed is tightening so early,'” he says.

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Shiller, Case on Housing Market

Housing data has been improving in recent months, but Professors Robert Shiller and Karl Case (creators of the S&P/Case-Shiller Home Price Indices) say several potential problems are on the horizon for the housing market. Shiller and Case tell Bloomberg that looming resets to option ARM mortgages, a “shadow inventory” of homes that are currently owned but will soon be on the market, and a lessened stigma about defaulting on a mortgage are all issues that could have a big impact on the housing market going forward.

The Lost Decade? Maybe Not

The general consensus in the media has been that the 2000s was a “lost decade” for stocks, with major indices like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all in the red since Jan. 1, 2000. But in an interesting piece for CBS Money Watch, Allan Roth says the reality wasn’t as bleak as you may think.

“If you look at inflation-adjusted returns,” Roth says, “this wasn’t even the worst decade of the last four. If you diversified, kept costs low, and rebalanced your portfolio, odds are you actually did just fine.”

Roth makes a couple of main points about why looking at index returns is misleading:

  • The Dow, S&P, and Nasdaq returns do not include dividend payouts, which usually add a couple of percentage points to your return every year;
  • Even broad indices like the S&P and Nasdaq include only a portion of all stocks in the U.S. markets, and they don’t include stocks in foreign markets;
  • Few investors have all-stock portfolios; if you look at the S&P return and draw a conclusion about what kind of decade it was for investors, you are thus only looking at one piece of the pie.

How did markets really do over the past decade? Not well, Roth says — but not as badly as the major indices would lead you to believe.

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