"Equities forever, says Elm Partners"

The Financial Times had an article just short of a year ago:

Cultish long-termism can hobble investors

Cryptocurrency mania shows the dangers of followers falling for fanciful narratives

September 12, 2017
by Izabella Kaminska

That we were going to revisit in a couple weeks for the crypto angle.

Thinking about it now, she may have been on to something, regarding not just the HODLers but investing in general, a point that one of the great financial writers, E.F. Hutton & Co's Gerald Loeb* made a few times.

In the same mold is Dan McCrum, second-in-command/acting editor at FT Alphaville.
He is so gimlet-eyed [read: doubting] I found myself changing the lyrics to the song from Disney's "The Happiest Millionaire" from "Fortuosity, that's me byword!" to "Dubiosity that's me byword!"

Here's FT Alphaville:

Elm Partners had great intellectual success three years ago with a bullish argument for long term equity returns, even if their clickbaity claim for “the most important number you won't find in the Wall Street Journal” failed to bait many clicks:...

***

...However the asset manager has doubled down with a similar argument in blog form. No matter that stock markets have been rising for the best part of a decade, long term returns for investors are going to be great! A precise 5.3 per cent a year, after inflation no less:

How do we arrive at our estimate of 5.3% real return? First, we need a simple and fundamentally sound predictor for each major regional equity market. One such measure is the Cyclically Adjusted Earnings Yield, i.e. 1 / CAPE, as suggested 30 years ago in a seminal paper by Shiller and Campbell.3 While there isn’t enough historical data to statistically derive a high level of confidence in this predictor, such evidence as there is combined with its fundamental economic rationale supports its use as a reasonable indicator.4 By way of anecdotal context, the Cyclically Adjusted Earnings Yield in 1968 was 4.6% for US equities, and the actual real return over that period has been 5.8% – not spot on, but not too bad either given all that’s happened over those 50 years.5

A lot to unpack there, not least the passing reference to a much debated indicator which lacks the data to give statisticians confidence.

As we have noted before, there is also a lot of looking back to the late 1960s and early 1970s at the moment, possible as the well of post-Carter Administration analysis has run dry. Over half a century, stock market returns have been good, but the 15 year years after 1968 were diabolical for stock market investors.

Here, for instance, is the inflation-adjusted index level for the S&P 500 for that period, as calculated by Macrotrends:...

...MUCH MORE

As the saying goes, read the whole thing.

There is reason to believe the current bull market has simply pulled-forward the expected returns of the next decade meaning the recent past is definitely not prologue.
More on that another time.

*Among other things, Mr. Loeb thought it important that the general public be exposed to matters financial and to that end tried to recognize the exposers (that sounded better in my head):

The Gerald Loeb Awards were established in 1957 by the late Gerald Loeb, a founding partner of E.F. Hutton. His intention was to encourage reporting on business and finance that would inform and protect the private investor and the general public. As the most prestigious honor in business journalism, distinguished journalists and outlets nationwide submit entries to the competition....

If interested here's one of our posts on Loeb:

"Gerald Loeb's Strategies For Winning On Wall Street Still Ring True"