|
|
|
|
|
The Muscular Portfolios Newsletter — No. 14 — Jan. 28, 2019
|
|
|
Which way will the S&P 500 move?
 By Brian Livingston
Traders have tried for centuries to find a formula that will predict the direction of the market.
The truth is that there are too many unknowns to reliably determine what any free market will do in the next one year.
Despite that, it's surprisingly easy to predict where the S&P 500 will be in the long term — i.e., 7 to 15 years from now. The best-known methods predict the index's 10-year real rate of return (in other words, the annualized return excluding inflation). Despite the fact that academic journals have fully disclosed these formulas, they continue to work rather well.
|
|
|
Figure 1. My column on the future level of the S&P 500 became the top story on MarketWatch.com's home page.
|
|
MarketWatch.com hired me this month as a biweekly columnist. My second-ever column — "How low will the S&P 500 go? Buffett and Shiller know" — became the top story on the MarketWatch home page on Jan. 23. (See Figure 1.) In fact, the piece was the No. 2, 3, or 4 most-popular page on the entire site for an unbelievable 48 hours after publication. Up against thousands of other stories, it was viewed by more than 130,000 visitors on Day 1 alone.
In an exclusive analysis, my column revealed a new study of the formulas used by experts — top investor Warren Buffett, Nobel laureate Robert Shiller, and others — to predict the S&P 500's 10-year return. The formulas have roughly forecast the market's direction starting in 1964 and now continuing through 2028.
The forecasts today aren't cheerful. Due to high valuations, the US stock market is expected to deliver much less than the average 6% real return it's given investors over the past 55 years. In fact, the median projection of the different formulas is for the market to produce a slightly negative return, not counting inflation. A 100% equity portfolio is likely to be crushed, compared with a diversified portfolio.
The whole story is in MarketWatch's Jan. 23 column.
My first MW column — exposing high trading expenses — was posted on Jan. 9.
|
|
Detailed portfolio stats are on the way
I'm working to get historical monthly returns of each of the Muscular Portfolios posted on a public spreadsheet site by the end of the month. The links will be reported in the February issue of this newsletter.
In the meantime, we have some good numbers on the performances since Dec. 31, 2015, when the graphs in the Muscular Portfolios book end. For example, Figure 2 shows that the Mama Bear Portfolio is handily beating the S&P 500 total return in the current bear-bull market cycle (Oct. 31, 2007, through Dec. 31, 2018).
|
|
|
Figure 2. In the current bear-bull market cycle, the Mama Bear Portfolio is returning 7.67% annualized. That's well over 1 percentage point more than the S&P 500's total return of 6.58%.
|
|
If the bull market that began in 2009 actually ended at the high in September 2018, I'll recalculate these performance numbers to use that date. However, the S&P 500 price level (not including dividends) never closed more than 20% down in the fourth quarter of 2018. Therefore, we can't say the nearly 10-year-long bull market is actually over, so Figure 2 runs through Dec. 31, 2018.
The final three years of Figure 2 — Jan. 1, 2016, through Dec. 31, 2018 — are returns from real-money accounts at FolioInvesting.com. These actual dollar gains have been grafted (so to speak) onto the estimates by The Idea Farm's Quant simulator that were published in the book. The three years of real-money returns are shown between the circular markers.
Over the 46 years shown in Figure 2, the Mama Bear returned 13.7% annualized. The S&P 500 total return was only 9.9%. The difference is entirely due to the diversified portfolio keeping its losses — even in the worst market crashes — below 20%. That's a level most investors can tolerate, whereas crashes of more than 30% are not. Muscular Portfolios are designed to lag the index during bull markets but make it all up during the inevitable bear markets, resulting in good performance over complete market cycles.
Until the raw data points are posted on the Web, you can read performance reviews of the three model portfolios — the Mama Bear, Baby Bear, and Papa Bear — at StockCharts.com, in a series of graphs beginning on Jan. 3, 2019.
|
|
Bogle leaves us his final revelations
|
|
 Figure 3. Jack Bogle statue at Vanguard. Photo by Blair duQuesnay/The Belle Curve.
John Calhoun Bogle, known to all as "Jack," succumbed to cancer on Jan. 16 at the age of 89. Individual investors lost a tireless advocate for simple and low-cost investing.
Just one month ago, Bogle published a new book, Stay the Course. It reveals many secrets of the Vanguard Group, which he founded.
I felt the book had received too little notice. Without knowing he would pass away, I published on Jan. 15 a four-part unveiling of his book's revelations. I hope you gain as much as I did from reading what he always promised would be his final book. See the series.
|
|
 Get the book that that frees you from Wall Street
Muscular Portfolios has received rave reviews from experts of all kinds:
"Don't let your portfolio atrophy; read Muscular Portfolios and pump up your wealth." —MEBANE FABER, coauthor of the The Ivy Portfolio
"There's a wealth of information in this book that can help every do-it-yourself investor." —WES GRAY, Ph.D., CEO of Alpha Architect
To order, visit Amazon, Barnes & Noble, or any bookseller.
|
|
You’re reading the FREE newsletter
 Please donate to receive the longer, paid version of the newsletter. We accept ANY DONATION of ANY AMOUNT. We want as many people as possible to have the information.
You get the following extra articles in the paid version of today's issue:
• Some ETFs aren't actually low-cost
• Mark Hulbert proves advisers are contrary indicators
Please don't forward your newsletter to others. This subjects us to spam complaints and harms our deliverability.
Instead, ask your friends to visit the Muscular Portfolios home page and get a subscription that's all their own.
|
|
Free stuff you might enjoy
If you've read this far, you deserve a reward — a free, downloadable 10-page special report that summarizes book Muscular Portfolios and the latest advances in financial technology (fintech):
Special report on Muscular Portfolios and fintech
If you missed any of our previous newsletters, links to them can be found in the lower-right corner of our home page.
If you have comments to contribute, please start a new email message to a special address that goes directly to author Brian Livingston: Contact us.
Thanks for your support!
|
|
|
|
|
|
|
