Stock Market Predictions Using Q
Last month, we used the P/E ratio to predict stock market performance over next 1 to 20 years. This time, let’s try using another valuation metric: the Q ratio. An easy way to calculate Q is by using the Federal Reserve’s Z.1 data, which was just refreshed last Thursday. And as mentioned previously, we know that predicting stock market movements profitably is extremely difficult, so we need to proceed with care.
Using data since 1945, the chart below shows the historical relationship between Q and S&P 500 returns over the following 1 and 20 years (annualized and adjusted for inflation).
Investment Options: US Stocks
This is the latest post in a series covering investment selection. Each post covers an asset class, highlighting selection factors to consider and listing filtered investment options.
“Is the market up or down today?” A question like this implicitly refers to the US stock market, not the market for German government bonds or crude oil futures, because when people think of investments and the financial markets, most naturally think of US stocks. US stocks are, and should be, a core holding for most investors.
Smart Year-End Investing Moves
From the November 2010 newsletter:
As you feast on turkey and Black Friday sales this weekend, you may wonder what investing tasks you need to take care of before year-end. Okay, that’s not going to happen, but here’s a list anyway. Happy Thanksgiving!
Predicting the Stock Market Using P/E
From the November 2010 newsletter:
As the year comes to a close, you will without a doubt see financial magazines and newspapers predicting what the markets will do in 2011 and suggesting what you should do about it. Most will be supported by a good story, not necessarily evidence.
We already know that successfully predicting stock market movements is extremely difficult–just ask mutual fund managers, Wall Street research analysts, or even your grandparents’ market experts. So if you want to consider it, whether for fun or for profit, you need to be particularly skeptical and careful with your research.
Investment Options: US Treasury Bonds
This is the latest post in a series covering investment selection. Each post covers an asset class, highlighting selection factors to consider and listing filtered investment options.
Bonds have become a very popular asset class since the financial crisis, as seen by the large flows to bond funds in 2009 and 2010 [pdf]. And yet, bonds still seem to be largely misunderstood by investors. Here are a few misconceptions about bonds.
Stock Market Experts of the 1930s
If you have even the slightest interest in investing, you probably notice stock market experts everywhere, whether they appear on CNBC, write for newspapers or blogs, or even serve as your advisor. Readers of this blog know to be very skeptical of their advice. We’ve already exposed the disappointing results of using Morningstar mutual fund ratings, mutual fund managers, and Wall Street earnings forecasts.
But has it always been this way? These studies generally use performance over the last few decades to support their conclusions. The stock market and its experts have been around a lot longer than that.
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