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Politics : Ask Michael Burke
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To: Knighty Tin who wrote (93264)11/27/2001 2:53:43 PM
From: Night Trader  Read Replies (1) of 132070
 
Mike,

There was a very interesting paper in one of the financial journals this year that looked at the long term returns we can expect from stocks. Apparently long term growth in EPS is actually less than GDP growth because some of the GDP growth is from enterprises not yet public. Real growth in EPS has averaged only slightly more than 1% a year which shocked me. Of course dividends are now much smaller so perhaps growth will be slightly more than that.

Still, we can expect 2-3% real growth in stock prices - even if valuations remain the same. Basically a little less than GDP growth plus dividends. Put another way, if stocks keep pace with inflation, it would take 25-35 years for their PEs to halve.
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