It took the Dow almost exactly four years to go from its bear market low to an all-time record high in early March 2013. The S&P was priced at 16 times operating earnings in March 2013 vs. its long-term P/E average of 18.8 and its 28.4 earnings ratio in 2000 (source: Howard Silverblatt of S&P Dow Jones Indices). Based on the March 2013 U.S. P/E ratio, Ireland, Italy, France, and the UK were trading at a 25% discount.
There are several “earnings” figures reported by a corporation to its investors. Basically, there are three: net income, earnings per share, and diluted earnings per share.
Treasury inflation-protected securities (TIPS) are issued by the U.S. Treasury and are designed to keep pace with CPI increases. The first TIPS were issued in 1997. TIPS comprise two parts: a real return and a CPI adjustment every six months. The “moving part” is the CPI change. The “real return” is a locked-in rate that stays the same until the maturity date. Investors earn a fixed rate of interest on an ever-increasing amount of principal.
According to Bianco Research, only 17% of more than 4,000 funds that invest in large U.S. stocks beat their benchmark for the 2011 calendar year. In most years, fewer than half do. According to Bianco’s research, the return correlation of U.S. stocks has quadrupled since the mid-1990s.
As recently as 1997, it took 20 stocks to eliminate most of the likelihood of enduring more risk than the market as a whole; today, according to Bianco, it takes 40.
The division of foreign markets into developed and emerging segments dates back to 1981, when Antoine van Agtmael, an economist at the World Bank, referred to third-world countries as emerging markets. In a 2011 performance study, the Aperio Group looked at 10 years of return data (12/31/2000 to 12/31/2010) from all active emerging markets mutual funds.
Anyone who put money into an S&P 500 index fund between late 1998 and early 2001 experienced a cumulative loss, as of January 21, 2012. Adjusted for inflation, the S&P lost 18% from August 2000 to January 2012. According to Yale economist Robert Shiller, this has never happened to the U.S. stock market, even if one were to go back to 1871. Even those who bought on the eve of the 1929 crash experienced a brief gain, in inflation-adjusted terms, in 1937.
Companies that buy back their own stock reduce their outstanding share count that, in turn, helps to boost earnings per share. Some argue that buybacks are not a good predictor of the stock’s future performance (e.g., executive officers of a company may encourage a buyback because their bonus may be tied to earnings per share). It appears that the best kinds of repurchases are ones that managers opt for simply because they view shares as cheap.
According to a Wall Street Journal article (February 2012), historical evidence shows stocks with lots of “buys” from analysts do no better than the broad market, on average. Perhaps this is because analysts give 11 times as many “outperform” or “buy” recommendations than they do “underperform.” New research suggests there may be a way to discern which “buys” are worth heeding.