Some good reading from around the Web.
A couple of years ago I wrote about how some statistics suggested that we might be in for a decade of 20% returns [1]from the stock market.
Of course, the FTSE 100 pushed on very swiftly from around 4,000 to touch 6,000. Great, but it also meant that much of those mooted 20% gains were in the bag.
After its recent travails, however, the FTSE All-Share is now down to a forward P/E of 9. A few more months of going nowhere, and that will be an historical P/E of 9, too.
I think this is bargain territory, even if you discount the crummy alternative returns on bonds and cash. Look at those and presume they’re rational (a controversial decision given all the Central Bank intervention in the market!) and I think the FTSE 100 could justifiably trade nearer 10,000.
Now you know why I always sound so bullish!
Happily, I’m not alone. Recent research from Fidelity found that after previous periods when the FTSE All-Share has traded on a P/E of around 9, it has returned on average an annual 11% real return over the next decade.
The Motley Fool wrote up [2] the Fidelity research, including this table:
| FTSE All-Share P/E ratio | Proportion of Observations | Average annual real return over 10 yrs |
| Less than 5 | 1% | 15% |
| 5-8 | 10% | 12% |
| 8-11 | 18% | 11% |
| 11-14 | 28% | 7% |
| 14-17 | 16% | 4% |
| 17-20 | 13% | 2% |
| 20-23 | 8% | 1% |
| 23-26 | 3% | 0% |
| 26-29 | 3% | -1 |
Feel free to fret about Europe or the number of old people in the market, or whatever else you consider yourself an expert on to find a reason not to invest.
I personally find the precedents more enlightening, and continue to buy all the shares I can for the long-term.
Obviously, past performance is no sure guide to future performance, but valuation is the best indicator we have.
Buy low, sell high: It sounds easy but it’s hard to do.
Are you doing it?
From the money blogs
- ETFs: Not the next financial time bomb – Canadian Couch Potato [3]
- Has the small cap premium disappeared? – Larry Swedroe [4]
- Stirring the sentiment tea leaves redux – Investing Caffeine [5]
- Is the stock market really more volatile these days? – Allan Roth [6]
- Bond of the week: Daily Mail, 7% – Fixed Income Investor [7]
- The long view of retailing – iii blog [8]
- Will Kitchin sink the global economy? – Money Moves Markets [9]
- Start-up business survival rates – The Digerati Life [10]
- The UK’s top young entrepreneurs – Cashzilla [11]
- Your budget is like a leaking ship – Early Retirement Extreme [12]
- Europe’s labour laws ‘sloth inducing’: China – Simple Living in Suffolk [13]
- Four efficiencies that make smoothies a viable business – MoneyGrowers [14]
- Thoughts from an old economist… – Stumbling and Mumbling [15]
- …and Aunt Doris’ view on growing old – Len Penzo [16]
Deal of the week: I love my new keyboard-less Kindle! The first Kindle book I bought since getting the new device was Reminiscences of a Stock Operator [17]
Mainstream media
- Unrest in Peace: Social inequality in the West – The Economist [18]
- Young Apprentice returns on Monday – BBC [19]
- The rewards and risks of a Eurozone rescue – Peston/BBC [20]
- Bogle: Market ‘about fairly valued’ – Morningstar [21]
- Millions hit by inflation – FT [22]
- Dividends offer hope to income investors – FT [23]
- Mining’s rich seam looks tarnished – FT [24]
- Baby boomers ‘privileged human beings’ – The Telegraph [25]
- How to save £20,000 a year on your mortgage – The Telegraph [26]
- How I lost £21,000 in a Bulgarian property fund – The Guardian [27]
- MP touting 30-year mortgage offers bad advice – The Guardian [28]
Like these links? Subscribe [29] for lazy weekend reading!