On Tue Apr 04 2000, Doug Henwood wrote:
> You could buy on any assumptions you wanted. Conventional valuation
> methods are based on assumptions about growth, interest rates, and
> volatility. A 7% profit growth rate is still faster than GDP trend
> growth, so you're betting on the profit share of GDP continuing to
> grow. If you expect profits to grow in line with GDP, then you'd be
> paying 30-40 times earnings for 3-4% returns, which would suck,
But if stock market returns are proportional to profits, and profits can only grow over the long run at the same rate as GDP growth (because if they outsripped it consistently, eventually they would outstrip GDP), that seems to mean it's impossible for the stock market to generate an historical average return that's greater than GDP growth over the long run. But hasn't it done just that, by historically returning 6%? Under this assumption, shouldn't profits have eaten the whole economy long ago?
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com