The Simple approach to predicting future stock market returns

[Southie]

Re: The Simple approach to predicting future stock market returns

@Southie

Per the article, there are three components that contribute to Total Return

1. Dividend yield
2. Earnings Grrowth
3. Expected change in P/E ratio

Mr. Bogle calls the 3rd item a speculative component - we respectfully disagree. (More on that in a subsequent post.

As promised, here is why we disagree. Let us assume the long term (last 50 years) average P/E ratio for the S&P500 is 16. (One of the Moderators of this Business forum may volunteer to verify this. Or maybe Mr. Hunt raises his hand - if he is sure, that is.)

The current P /E ratio is 23. Hence it is reasonable to expect reversion to the mean. That Mr. Bogle calls this a speculative component appears to go against the time tested rule that the price you pay matters.