Unexpected Returns has 24 ratings and 1 review. said: During the summer InvestingByTheBooks will review some older books that . Unexpected Returns has 76 ratings and 5 reviews. Jef said: Quite a Unexpected Returns: Understanding Secular Stock Market Cycles Ed Easterling. and industry colleague Ed Easterling called Unexpected Returns: As you may remember, Easterling’s firm is Crestmont Research. (www.

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Unexpected Returns: Understanding Secular Stock Market Cycles

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Unexpected Returns by Ed Easterling. Extensive analysis and discussion of the long-term seasons in the stock market. Kindle Editionpages.

Unexpected Returns by Ed Easterling

To see what your friends thought of this book, please sign up. To unexpetced other readers questions about Unexpected Returnsplease sign up. Lists with This Book. This book is not yet featured on Listopia. Aug 20, InvestingByTheBooks. During the summer InvestingByTheBooks will review some older books that we never got around to writing about although we think they are important.

Ed Easterling shows that by taking a step back and getting a better overview the investor gains an understanding of secular market cycles that most lack. The basic premise is that the valuation of markets matters and affects expected return during periods of both one and two decades ahead during which trends in PE-ratios give vastly different investme During the summer InvestingByTheBooks will review some older books that we never got around to writing about ezsterling we think they are important.

The basic premise umexpected that the valuation of markets matters and affects expected return during periods of both one and two decades ahead during which trends in PE-ratios give vastly different investment results.

It might be true that in the very long run — say 50 or years — the equity market has an annual return of for example 8 percent, but during a decade or two the average return is often far higher or lower than this. Decades starting with low valuations have much higher average returns than those starting with high valuations.

Unexpected Returns

Contrary to financial theory it is not necessarily so that taking higher risk by for example holding a higher proportion of equity to bonds gives higher expected returns. It simply depends on the starting valuation of both assets. According to the author the correlation between starting PE-ratio and the subsequent year average annual return is percent.

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Taking a higher risk could for an investment with a horizon of a decade or two have lower expected return than taking lower risk. Decades that start with high valuations are usually trending sideways despite large cyclical swings.

Further, the author states that investors underestimate the long-term adverse compounding effects of sideways volatility and negative periods. Hence, Easterling argues that depending on which environment we are in at the moment we should act accordingly as investors. With enlightning color pictures and graphs it is shows that over very long time the movements of the equity market reflect the value of corporate cash flows.

Unexpected Returns: Understanding Secular Stock Market Cycles by Ed Easterling

However, during decade-long periods there are huge deviations. The long-term trend in cash flows or earnings is actually remarkably stable. Instead, the secular trends in equity valuations depend on changing in Unexpeccted. Easterling shows that these valuation trends do not depend on the average level of GDP-growth for a period.

If something the correlation is the opposite from what is expected. The author finds a Y-shaped correlation between PE-ratios and inflation levels.

When inflation is really high or there is severe deflation, PE-ratios are low and then there is a sweet spot when inflation is in unexpedted single digits when historic PE-ratios has been high. In the middle part of the book Easterling launches what he calls Financial Physics — a way to predict future equity returns.

Unexpecged future inflation is unknown and also as the correlation between inflation and PE- levels is low I would personally prefer to use some measure of reversal to the mean in PE-ratios. Unexpected Returns makes it clear that the stock market rreturns a faint but strikingly long memory that tilts probabilities in one way or the other thereby changing the returns landscape.

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