In March 2009, Barron’s began a series of articles on long term stock performance, with one of the main conclusions being that when stocks have below average returns over a 5- or 10-year period, they tend to then bounce back with strong performance over the next 5 to 10 years.
The past four years-plus have made that finding sound prophetic, with stocks surging back after the “lost decade”. And now, Barron’s says, they are priced for 9% annualized returns over the next five years.
Validea’s Benjamin Graham-based portfolio is up 15.6% annualized since its 2003 inception, nearly tripling the S&P 500.
The estimate comes out of data from Wharton Professor Jeremy Siegel, and shows that the average annual return for stocks since 1871 has been 8.84% (6.66% after inflation), according to Barron’s. “Negative [returns] for both the five- and 10-year intervals occurred through the close of 2008,” Barron’s Gene Epstein writes. “But as of the past November’s close, the 10-year less-one-month has scored an average annual return of 8.36%, about in line with the median; and the five-year less-one-month — marked to the close of 2008 and near the market lows — has racked an average annual return of 19.26%.” The latter is far above the long term average, but Epstein says that doesn’t mean the next five years will be bad for stocks. “The five-year stretch is also part of the 10 years beginning in early 2009, and the historical patterns indicate that those 10 years should run above average, he says. “So while the next five years are unlikely to be as stellar as the previous five, median returns between now and late-2018 are still quite possible.”