The illusion of investors and the upcoming disappointment

Recently the WSJ published an interesting article with an illuminating title: When an annual return of 59% is not enough

Let's compare investor expectations in the WSJ with John Hussman's latest expectations from a few snippets from the Journal.

In a recent survey of 750 US individual investors, Natixis Investment Managers found that these people expect to earn 17.3% in 2021, adjusted for inflation. It would seem a realistic expectation, after all the 'S&P 500 gained 18.4% last year, including dividends, and for now the earnings are 15.9% in 2021. Return expectations appear to be based on data. passed.

In the long run, however, people in the Natixis survey expect to earn an average of 17.5% annually, again adjusted for inflation – even higher than this year. This is up from the long-term yield of 10.9% they expected in 2019 when the previous survey was done. This is a very high figure, more than double the average return on the stock market in 1926, equal to 7.1%, again net of inflation.

Are these realistic expectations, which can be supported by current investments? The research center of the well-known Business School Wharton (WRDS) analyzed data of 3790 stocks and ETFs traded in the last ten years with an ending date of May 31, 2021. Only 14% achieved total returns above 17.5% per annum, against 22% who had a negative return. So there is more chance of losing a portion of the capital than gaining over 17.5% .

The problem is that when the yields were obtained 10 years ago, interest rates were much higher, so it was even easier to have this type of yield. Now, with negative or zero rates, there are expectations of a higher return, but it is wishful thinking, excessive optimism.

These expectations can hardly be met, so what? When the market realizes the unreality of expectations, we will see an increase in volatility, because operators will move from one stock to another in order to obtain the expected return, but, in the medium term, all this will prove useless. There is no eternal growth

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The article The illusion of investors and the upcoming disappointment comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/lillusione-degli-investitori-e-la-delusione-prossima-ventura/ on Mon, 05 Jul 2021 13:20:02 +0000.