Independent analytical outfits who are able to do a better job at securities research are hard-put to find clients among the financial professionals who are willing to buy a decent analytical product from them. Many are leaving the business. Why?
The average analyst will correctly tell you that stocks have risen, on average, about 10% over the long-term. But that has been in the past. Unless interest rates in the future remain extremely low, chances are that the future stock market will not earn this past figure. Some researchers have projected an average return of only 6%, and much less for the future.
True, some financial academics claim that price earnings ratios for stocks are relatively low and this bodes well for the future of the stock market. My investigations over the years have told me that price/earnings are a terrible measuring tool. What is a high or low P/E is simply too relative and too dependent on other important factors, including interest rates.
And let’s not forget the specter of future inflation because of our extraordinary budget deficits.
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