Interesting research study. McKinsey is talking about investment returns over long periods. Does this mean the golden age of trading will begin? And the golden age of investment will end? Because the last 30 years, all investors had to do was buy-and-hold and they could compound their money and retire comfortably. Just curious you guys thoughts on this.. Or will we see a roaring bull markets like those of the 90s again? http://www.mckinsey.com/industries/...n-mip-mck-oth-1611&kui=l1L-ZDMAdy56OMkeKrKapQ For us daytraders, it probably doesn't matter. But could be useful to frame your market view with bigger picture...
Our very understanding of asset class returns is mostly based on the long cycle of bonds for the last 30+ years. If the real return compresses to a much longer historical norm, investing "science" will be re-written. More importantly, things are going to be tougher in every aspect of economic life. You just made me very depressed.
The use of well designed, quantitative investment strategies that have produced consistent performance over long time frames / valuation regimes ( as described in the article ) that key returns off of the use of a diversification of stock universes and tactical management may be the way to go. Stock selection factors representative of the universes under the academically formalized Capital asset pricing model ( CAPM ), such as size and value, have shown excess returns evidence over these long samples and have been recently accessible through low expense ETFs http://tinyurl.com/hylh8x7 http://tinyurl.com/z7l7pn2 . An example of a tactical strategy that has shown persistent and consistent alpha over many generations involves a two transaction per year allocation in: 1) a blend of small cap value, Large value or mid cap growth, and emerging small cap universes from Nov 1 to May 1, then 2) switched for more "defensive" utilities sector, or U.S. Long bonds or cash ( depending on on a risk management algorithm instruction ) from May 1 to Nov 1 and repeat with the 3 blend Nov 1. This exploits the seasonal excess returns premium that the CAPM factors produce in the winter / spring and the returns premium over the CAPM factors that the "defensive" selections produce vs. the CAPM. The emerging market allocation exploits valuation discrepancies that have many times occurred between EM and domestic ( EM is very cheap right now and domestic expensive ). Reviewing rolling 15 year total returns history ( column G ) http://tinyurl.com/hh3ymn8, returns have been consistent over many Presidential administrations, economic and geopolitical events, and "drivers of equity returns" variations. Even 5 year total returns periods have been reasonably consistent http://tinyurl.com/hplwn6v These type of strategy returns and the evolution of ETFs for use in accessing these CAPM factors convinced me to gravitate away from trading and into low frequency quantitative strategies. - Don't quit your day job - Don't use leverage - Open a Roth IRA - Sometimes money is made by sitting in cash - Don't be a hostage to the markets - Let the markets, profitability of world economies work for you
Robert Shiller said the same thing with his CAPE: Expected returns of the next decade likely will be below average he said. As an optimist, I say that means the next 20 years will be our turn. It will be a trader's world instead of investor's?
Most of the time I think that the best money strategy for health and wealth is an index fund that is financed with a home equity loan. Then, I meet guys who tell me they have a strategy that produces 4-8 Sharpe ratio and are just waiting for management approval or infrastructure funding....