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1/9 Thread: Long-term return expectation
I ran a poll yesterday here asking the following question:
"What level of IRR would you be happy/satisfied with 10 years from now for your portfolio?"
~3k people responded, and ~54% of them said >10%.
I ran a poll yesterday here asking the following question:
"What level of IRR would you be happy/satisfied with 10 years from now for your portfolio?"
~3k people responded, and ~54% of them said >10%.
2/9 I thought it was surprising that people are still expecting >10% IRR when ~$20 trillion bonds are trading at negative yield.
I understand people might have interpreted the question differently. Some might be "okay" with 7-8%, but would require >10% to be "happy".
I understand people might have interpreted the question differently. Some might be "okay" with 7-8%, but would require >10% to be "happy".
3/9 At one hand, permabulls might be just extrapolating the recent equity returns. The narrative of roaring 20s has perhaps been permanently imprinted in their minds.
4/9 On the other hand, permabears might find it completely unacceptable to invest in stocks with <10% IRR potential no matter what the interest rate is.
They would hold large cash position and wait for the crash to capitalize on the opportunity and generate >10% IRR over LT.
They would hold large cash position and wait for the crash to capitalize on the opportunity and generate >10% IRR over LT.
5/9 I find both of these groups' assumptions perplexing.
If you model companies (whatte boomer, right?), especially tech businesses and discount FCFs at >10%, I think you would be hard pressed to find more than a handful of stocks (at best) that seem undervalued.
If you model companies (whatte boomer, right?), especially tech businesses and discount FCFs at >10%, I think you would be hard pressed to find more than a handful of stocks (at best) that seem undervalued.
6/9 Personally, I don't quite understand why we even need to generate this 12/15/20% IRRs.
Such high expectation is typically a recipe for disaster as it requires you to chase the riskiest stocks or force you to take big macro calls on a frequent basis.
Such high expectation is typically a recipe for disaster as it requires you to chase the riskiest stocks or force you to take big macro calls on a frequent basis.
7/9 I am under no delusion that I am the next Buffett. Of course, I want to beat the market, but I think most people don't realize how much they get ahead even if they beat the market by 2% over long-term, and not some eye popping 5-10%.
8/9 If the index generates 7% in the next 40 years, and I beat the market by just 1%, I will be ahead of the market by 45%. If alpha is 2%, I will be ahead by 110% on a cumulative basis.
9/9 The most important thing is NOT to generate alpha this year or next, but to stay alive in the playing field, get incrementally better in this great game of investing every year, and try to beat the beast in the long-term.
It isn't easy. It never was, and never will be.
It isn't easy. It never was, and never will be.
