Unexpectedly Intriguing!
October 17, 2005

John Hussman, the PhD manager of the Hussman Strategic Growth Fund (HSGFX), writes a weekly market commentary for his fund (HT: Moneywise at The Real Returns). His August 29, 2005 commentary offered a bold prediction: a 40-year forecast for the S&P 500 Index:

I've gone ahead and calculated the long-duration forecast for the S&P 500 versus its actual total return for every period since the late 1930's. Even for very long horizons, the projection performs well, generally within 2% of the true annual return. Notice that the horizon of each forecast is simply the duration of stocks at the time, so what you're seeing on the chart are forecasts that have ranged from less than 20 years to more than 60 years in duration (the longest-duration one, unfortunately, being the one at the 2000 market peak). At present, we've got a projected long-term total return for the S&P 500 of about 7.8% annually for a probable duration of about 40 years, even making the fairly optimistic assumption that the market's P/E multiple will not contract in the future.

This sounds like he did quite a bit of work, but sadly, work that was wholly unnecessary if he would have just simply assumed that the next 40 years for the S&P 500 Index would look like its last 105 years. Here's Political Calculations' chart showing the extremes of the rates of return for the S&P 500 Index for holding periods ranging from 1 to 105 years, along with the average rates of return for each of these holding periods from 1900 through 2004, which shows the average approximate rate of return for just about every holding period to be, drum roll please, 7.8% when rounded to one decimal place:

S&P 500 Average and Extreme Returns for Various Holding Periods

The bottom line? Predicting an average annual return of 7.8% in the S&P 500 Index over the next 40 years might appear to be a bold prediction, but in reality, is not exactly going out on a limb. Those considering investments in the HSGFX fund might like to take that into consideration in evaluating Hussman's money management prowess.

About Political Calculations



blog advertising
is good for you

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Applications

This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

Visitors since December 6, 2004:

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Archives
Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.