Time Needed Applications

The early 1990s sequences will be interesting. Even the 1993 sequence may end up with a long term loss. The outer confidence limit occurs in 2013.

The odds are 50%-50% that the January 2000 returns will show a net long term (real dollar) loss at some point between 2032 and 2036.

Background

In my original investigation, I combined two approaches. At today’s valuations (P/E10=28), I estimated that the last (real dollar) loss will occur at some point within the next 5 years and 20 years, most likely between 13 to 17 years.

I use the same estimates when P/E10=20. The historical data shows little variation for P/E10=20 through 27.

Time Needed to Assure a Gain
Edited: Time Needed to Assure a Gain

1990s Returns

P/E10 first exceeded 20 in 1993. It has remained above 20. Adding 13 to 17 years to 1993 brings us to 2006 to 2010. At the confidence limit, we add 20 years, which brings us to 2013.

Year 2000 Returns

I applied the valuation sensitive formula to January 2000 with P/E10=44. The worst case result is 36 years. An unlucky outcome is 34 years. The most likely outcome is 32 years.

The odds are 50%-50% that the January 2000 returns will show a net long term (real dollar) loss at some point between 2032 and 2036.

According to formula, the best case would be 2025 years. The best procedure is to extend the lower limit for the same reasons as before. The best case outcome would occur before 2025 years.

Observations

The early 1990s sequences will be interesting. A few sequences may slip by without incurring long term (real dollar) losses. I would add such outcomes to the probability of being blindsided.

Even the 1993 sequence may end up with a long term loss. Today’s valuations are still sky high (P/E10=28). The outer confidence limit occurs in 2013 (just over six years from now). We could easily see a sharp price drop before 2013.

Today’s predictions are consistent with those for January 2000.

From January 2000 to January 2007 will be seven years. Assuming that P/E10=28 in January 2007 and applying a range of 13 to 17 years until the last loss takes us to 2020 to 2024. The outer confidence limit would occur in 2027. However, the January 2000 sequence is currently showing a (real dollar) loss. It would take a few years more to complete a recovery.

Have fun.

John Walter Russell
December 15, 2006