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Strategies & Market Trends : Value Investing
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To: Mr.Gogo who wrote (39695)10/16/2010 1:57:26 AM
From: Spekulatius1 Recommendation  Read Replies (2) of 78748
 
re Hussman. As Madharry pointed out, the estimated return in Husman's article is based on the assumption that the Dividend yield that is currently below the historical mean will return to the LT mean of 3.7% and that it will take 7 years to do so.

There are a few problems - the payout ratio (ratio of Dividends/earnings) is lower than it used to be decades ago. Also, competing bond yields are much lower as well. I would argue that the earnings yield (reverse PE) is much more important than dividend yield - either that or a lower payout ratio should result in earnings growth above the LT growth rate.

Small changes cause huge deviations in the expected return. Overall I agree that the market looks fairly valued and perhaps overvalued, but that I why we get together here to sniff out better values and obtain better returns. If anything, a possible strategy might be to hedge by shorting the market against the value investments of choice.
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