Compounding Quality
Compounding Quality

@QCompounding

15 Tweets Jan 26, 2023
A guide to the market for 2023
2022 was a bad year for financial markets.
The good news is that bad years are usually followed by good years ⬇️
The S&P500 now trades at a P/E of 16.7
This in line with the average P/E of the past 25 years.
As a result, you can expect equity returns that lay in line with the historical average: 7-9% per year.
This overview shows the relation between the forward P/E and equity returns.
The lower the forward P/E, the higher your expected return.
Over the past 20 years, the average earnings of companies grew by 9.1% per year.
EPS growth was driven by the following elements:
- Margin expansion: 5.1%
- Revenue growth: 3.8%
- Share buybacks: 0.2%
In 2022 small cap stocks and value stocks performed really well:
In the short term, stocks can be very volatile.
Despite average intra-year drops of 14%, annual returns were positive in 32 out of 42 years.
Use volatility in your advantage.
Real estate has become way more unaffordable due to increasing interest rates in 2022:
The best time to invest, is when consumer confidence is low.
This seems to be the case today.
International stocks are now trading at a large discount compared to US stocks:
Here you can find an overview of all yearly asset class returns since 2008:
2022 was one of the worst years ever for 60/40 portfolios
(Portfolios with 60% bonds and 40% equity)
The longer you invest, the more chance you'll make money.
Since 1950, there has never been a 20-year period in which you lose money by investing in stocks:
The S&P 500 returned 16.8% per year over the last decade.
However, the average stock investor only made 8.7% per year.
Why? Because investors buy and sell at exactly the wrong time.
If you liked this, you'll love our website.
▪️ Each Tuesday we share 5 investment insights
▪️ Each Thursday we publish a deeper investment article
Start your journey here:
qualitycompounding.substack.com
This thread was based on JPM's excellent Guide To The Markets (always a must read).

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