Category: Economics

In previous posts, I have shown how the equity allocation of investors is outstanding at predicting 10 year annualized future stock market returns.  While this information cannot be used to time the markets in the short term, it may be useful for long term planning considerations, such as retirement, deciding on a larger downpayment on a home…

In the last few posts, we have shown some techniques for predicting nominal returns and real returns.  We have also looked at simulating safe withdrawal rates in retirement with various stock / treasury bond allocations and lengths of retirement.  Now it is time to put all of this together and develop a model for predicting…

The Trinity study is a famous study that looked at how much one could draw from savings in retirement while invested in stocks and bonds, without completely depleting the portfolio over a period of time.  The safe withdrawal rate, as it was called, is the percentage of the invested savings that could be withdrawn in…

We have made attempts to predict long term nominal (before inflation) returns in the market with great success using the equity allocation of investors.  However, in order to predict what safe withdrawal rate we can maintain in retirement, we need to be able to predict real returns (that is, returns after inflation).  The reason for…

In the previous set of posts on equity allocation of investors, we looked at predicting long term market returns on a nominal basis.  What we actually want to be able to do is predict real returns after inflation.  This will be an important capability to determine the maximum safe withdrawal rate in retirement.  The Trinity…

In the last two posts we looked at an incredibly accurate set of models for predicting future 10 year annualized returns in the market.  These models utilize the equity allocation of investors to predict future long-term returns.  When investors allocate a high amount to equity, future long term returns will be diminished, while if they…

Continuing from the last post on my favorite valuation indicator for long term market returns, the equity allocation of investors, I wanted to follow up on this with an even better model for long term market returns.  This post will get somewhat technical in data analysis, so be warned. If you look at the post…

I wanted to discuss my favorite long term market valuation indicator, which we will call equity allocation of investors.  What does that mean?  Well, in short, of all the wealth and assets to which people can allocate their capital, it represents the fraction that is allocated to equities.  The idea is simple – when investors…

We have been talking a lot about how durable and sustainable returns on capital lead to superior returns over long time horizons.  I thought it might be instructive to look industry by industry and market sector by market sector to learn if there are any patterns to return on capital.  If we know what to…