Looking into the Future

I took some data on the Scenario Surfer to estimate what P/E10 is likely to be throughout the next decade. I started with P/E10=14 Bear Market.

Scenario Surfer Runs

I selected P/E10=14 Bear Normal Market. Here are the Year 10 results.

Run 1.
Year 10 P/E10: 7.4.
High: 15.6 in Years 5 and 6.
Low: 7.4 in Year 10.

Run 2.
Year 10 P/E10: 5.7.
High: 15.4 in Year 6.
Low: 5.7 in Year 10.

Run 3.
Year 10 P/E10: 11.9.
High: 19.1 in Year 1.
Low: 10.3 in Year 9.

Run 4.
Year 10 P/E10: 8.4.
High: 14.0 in Year 0.
Low: 6.5 in Year 9.

Run 5.
Year 10 P/E10: 11.4.
High: 16.6 in Year 2.
Low: 9.2 in Year 9.

Run 6.
Year 10 P/E10: 14.7.
High: 14.7 in Year 10.
Low: 10.2 in Year 9.

Run 7.
Year 10 P/E10: 9.7.
High: 14.8 in Year 5.
Low: 9.7 in Year 10.

Run 8.
Year 10 P/E10: 8.4.
High: 14.0 in Year 0.
Low: 5.8 in Year 2.

Run 9.
Year 10 P/E10: 8.0.
High: 15.7 in Year 1.
Low: 5.4 in Year 5.

Run 10.
Year 10 P/E10: 13.2.
High: 15.5 in Year 7.
Low: 12.3 in Years 8 and 9.

Run 11.
Year 10 P/E10: 7.8.
High: 14.0 in Year0.
Low: 7.1 in Year 9.

Run 12.
Year 10 P/E10: 7.5.
High: 25.0 in Year 3.
Low: 7.5 in Year 10.

Run 13.
Year 10 P/E10: 8.2.
High: 16.8 in Year 3.
Low: 8.2 in Year 10.

Run 14.
Year 10 P/E10: 7.6.
High: 14.0 in Year 0.
Low: 7.3 in Year 8.

Run 15.
Year 10 P/E10: 12.8.
High: 16.0 in Year 2.
Low: 8.5 in Year 5.

Run 16.
Year 10 P/E10: 14.7.
High: 22.3 in Year 3.
Low: 11.5 in Year 8.

Run 17.
Year 10 P/E10: 10.2.
High: 25.2 in Year 2.
Low: 7.5 in Year 8.

Run 18.
Year 10 P/E10: 14.6.
High: 19.5 in Year 2.
Low: 14.0 in Year 0.

Run 19.
Year 10 P/E10: 6.5.
High: 24.0 in Year 5.
Low: 6.4 in Year 9.

Run 20.
Year 10 P/E10: 9.7.
High: 14.0 in Year 0.
Low: 9.6 in Year 7.

Data Summary

Year 10 P/E10 levels:
P/E10=20.0 and above: never.
P/E10=16.0 to 19.9: never.
P/E10=14.0 to 15.9: 14.7, 14.7, 14.6.
P/E10=12.0 to 13.9: 13.2, 12.8.
P/E10=10.0 to 11.9: 11.9, 11.4, 10.2.
P/E10=8.0 to 9.9: 8.4, 9.7, 8.4, 8.0, 8.2, 9.7.
P/E10=6.0 to 7.9: 7.4, 7.8, 7.5, 7.6, 6.5.
P/E10=5.9 and lower: 5.7.

High P/E10 levels:
P/E10=20.0 and above: 25.0, 22.3, 25.2, 24.0.
P/E10=16.0 to 19.9: 19.1, 16.6, 16.8, 16.0, 19.5.
P/E10=14.1 to 15.9: 15.6, 15.4, 14.7, 14.8, 15.7, 15.5.
P/E10=14.0: (five times).

Low P/E10 levels:
P/E10=14.0: (one time).
P/E10=12.0 to 13.9: 12.3.
P/E10=10.0 to 11.9: 10.3, 10.2, 11.5.
P/E10=8.0 to 9.9: 9.2, 9.7, 8.2, 8.5, 9.6.
P/E10=6.0 to 7.9: 7.4, 6.5, 7.1, 7.5, 7.3, 7.5, 6.4.
P/E10=5.9 and lower: 5.7, 5.8, 5.4.

Data Analysis

In spite of our being in a long lasting (secular) Bear Market, there is a good chance that P/E10 will rise above 20 within the decade. This happened in 4 out of 20 runs on the Scenario Surfer.

The odds are about 50%-50% that P/E10 will stay below 16 throughout the next decade. This happened for 11 out of 20 runs.

The odds are about 50%-50% that P/E10 will fall below 8 at some time within the next ten years. This happened in 10 out of 20 runs.

We should prepare for the possibility that P/E10 will return to historic lows. It fell below 6 in 3 out of 20 runs.

The odds are close to or a little bit higher than 50%-50% that P/E10 will be below 10 at the end of ten years. This happened in 12 out of 20 runs.

The odds are against P/E10 being as high as 16 at the end of ten years. This happened in zero out of 20 runs. In fact, P/E10 always ended lower than 15.

Conclusions

These runs help us prepare for the future. They tell us what to expect during the next ten years.

Have fun.

John Walter Russell
December 19, 2008