FYI: To earn a decent return going forward, how reliant on multiple expansion are buy and hold investors in the S&P 500? Let's take a look at one measure.
The first chart plots forward 10-year returns for the S&P 500 at various starting 5 point "CAPE" valuation buckets (i.e. less than 10x P/E all the way through above 30x) against the change in the starting P/E relative to the P/E in ten years (i.e. whether the P/E multiple expanded or contracted) going back to Ibbotson data inception in 1926. The chart shows the strong relationship between forward performance and the change in the multiple, as well as the impact of the starting valuation (the cheaper the starting valuation, the higher the returns and the more likely the index will exhibit multiple expansion, whereas the more expensive the starting valuation, the lower the returns and the more likely the index will exhibit multiple contraction).
Regards,
Ted
http://econompicdata.blogspot.com/2016/12/a-long-term-position-in-s-500-is.html
