Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (48136)	10/20/2001 9:09:59 PM
From: Pirah Naman	Read Replies (2) \| Respond to of 54805

Mike: "Asness notes that real earnings growth for Standard & Poor's 500 companies - that's earnings minus inflation -- has averaged just 1.6 percent a year for more than a century." I've never seen that statistic. Based on everything I've seen, that would put average inflation at about 10%. I don't get it. The 10+% return attributed to the S&P500 is also noted as an ~7% (7.2% I think) "real return" that is, return after inflation. That 10+% return is made up of three components: earnings growth, dividends, and a special bonus due to the survival bias inherent to an index. That last factor is to say that the actual return from a basket of 500 stocks, even if weighted by market capitalization, if actually held no matter what, will be less than the index return, since the index replaces laggard companies on a semi-regular basis. So the 10+% is something of a fudge. The long run earnings growth of the S&P 500 is ~5% pa. It has been slightly above that average the last few decades, but inflation has also been above average the last few decades. Over the long haul, the earnings growth of all companies in this country will tend to converge on GDP growth + inflation (GDP is reported in "real" or after inflation terms). Because the S&P 500 is made up of above average businesses, it might do slightly better than that. - Pirah