ED EASTERLING UNEXPECTED RETURNS PDF

This is a great opportunity to share one or both books with clients or friends. Unexpected Returns has 16 books in a case box; Probable Outcomes has 24 books in a case box. The case boxes have never been opened and contain new books with dust jackets. Fine print: partial and mixed case boxes are not available. Books may not be resold on eBay or Amazon.

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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 During the summer InvestingByTheBooks will review some older books that we never got around to writing about although we think they are important.

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 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.

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. 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. 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 PE-ratios. 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 low 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.

As 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 has a faint but strikingly long memory that tilts probabilities in one way or the other thereby changing the returns landscape. Most books are garbage - this is a gem.

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Unexpected Returns: Understanding Secular Stock Market Cycles

Recent Additions Financial Market and Economic Research Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptual approach toward investment strategy that is applicable to the current market environment. This is a great opportunity to share one or both books with clients or friends. For details, click here. Research Objectives The objective of the research and its publication on this site is to present rational perspectives based upon a diligent analysis of historical data. Through understanding and developing perspectives on that data, vital new knowledge is formulated. Armed with that knowledge, we can then start to make informed decisions.

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Book Review of Unexpected Returns by Ed Easterling

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 During the summer InvestingByTheBooks will review some older books that we never got around to writing about although we think they are important. 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 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.

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