Mark Hulbert and I have compared notes on the Value Line Median Appreciation Projection (VLMAP) over the years. Yesterday we spent some time collaborating on our relatively new emphasis on the Value Line Low Total Return (VLLTR) forecast as another guiding resource for long-term investors.
Hulbert’s article for WSJ MarketWatch: Where Will Stock Market Be in January 2017?
Some thoughts after co-pondering this subject with Mark Hulbert for a few moments yesterday:
1. We know better than to believe in crystal balls. That said, I think successful investors need to remind themselves often about patience and discipline. And in this case — one of our greater gifts is the discipline (and I’d argue, freedom) delivered by an emphasis on returns, return forecasts and the oasis from chaos that shelters us from the noise of obsessing over prices and short-term noise.
2. Mark and I continue to find it intriguing and certainly counter-intuitive that forecast error for 4-year time horizons is apparently lower than 1-year versions (individual stocks and markets.) Quarterly forecast error is even higher. Dreman was right about that. But our emphasis on long-term trends and longer time horizons is actually another counter-intuitive oasis. We think we understand why people like Jeremy Grantham and GMO are comfortable with 7-year forecast horizons. Grantham merely smiles when “average investors” wail about GMO’s track record and philosophy of 7-year forecast time horizons.
3. As we said when comparing the actual vs. forecast for VLLTR, it’s the shape that matters. (In fact, Hulbert urged us to be more comfortable with the implications of that 2003-2007 “flat spot” … noting that a vulnerable stock market was finally whacked.) Investors who sought refuge in high-quality stocks (we did) or who ratcheted up cash equivalent allocations would have been served well during and after the Great Recession.
4. And of course, the flip side is that our back-up-the-truck moment in early to mid-2009 is vindicated as these quarters go into the long term track record “can” as noted in the article and previous post.
5. At MANIFEST, we like VLLTR better than VLMAP. VLLTR includes dividends (is not just annualized price appreciation). Yes, the shape is what matters … and VLMAP provides guidance on a relative basis. But actual results more closely resemble historical VLLTR and we the prefer the absolute over the relative wherever we can pursue it.