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Risk Of US Stock Drawdown Rises To One In Three
The risk of a meaningful stock pullback's elevated.
You can tell because... well, have you looked at the historical percentile ranking for the S&P's current multiple? If not, maybe don't. It'll give you vertigo. Especially if you're already prone to acrophobia.
But if you're not satisfied with traditional valuation metrics and/or you enjoy indulging in a lot of complicated analysis to "prove" the self-evident, you'll love Goldman's revised "framework" for calculating drawdown risk.
As the
Per a chart I saw of stock market P/E vs subsequent market return (in the Howard Marks post I linked somewhere) the risk of a zero percent ten year return is about One in One. I know, who has a ten-year investment horizon? The institution might, but the manager doesn’t. But suppose one did. Would one logically own stocks, 10 year Treasuries, or 10 year TIPS?
Stocks.
My rationale is because I am starting to worry that Treasuries are subject to unpredictable, wild swings based on who is in office, and what their policies, spending decisions and presidential actions will be – which may not be aligned with my financial interests over the next 10 years.
Stocks, however, represent investments in businesses that are controlled by CEOs- who are more likely to make decisions that are more closely aligned with my financial interests over the next 10 years.
🙂