In his paper, “The 13th Labour of Hercules: Capital Preservation in the Age of Financial Repression,” author James Montier makes the reference:
The investor has no sound basis for expecting more than an average overall return…[from] commonBen Graham
stocks [JM: Indeed, on our measures global equities look priced to deliver around 3% real p.a. in
our current forecast]…But even if these expectations should prove to be understated by a substantial
amount, the case would not be made for an all-stock investment program…The common stock buyer
at today’s prices will be running a real risk of having unsatisfactory results therefrom over a period
He goes on to point out that when markets are overvalued, there is a greater possibility of a significant pop in subsequent years.
Where are we today?
Principle: If you pay a premium for a market, you may expect more pain
Montier makes the point that when “at forecasts of zero and below, investors run the risk of seeing their investment halve over the next three years!”
Chart: Forecasted returns relative to maximum drawdown over three years
Here is the paper: