Endnotes
- In a box plot, the box represents the range of the middle quartiles (25th to 75th percentile) of returns. The whiskers extending from the top and bottom of each box show the maximum and minimum returns, respectively.
- The Gordon growth model is represented as r = D/P + g, where D/P is dividend yield and g is capital gain (i.e., appreciation yield).
- For readers interested in more details, our equity methodology document is available in the Asset Allocation section of our website.
- A better estimate of earnings yield would incorporate average earnings over time, as does the CAPE (Shiller P/E) ratio; a discussion of CAPE appears later in this article.
- Relative metrics are anchored to their long-term historical levels and assume a 50% return to those levels over the next 10 years via a change in price only.
- The character Nunez appears in H.G. Wells' The Country of the Blind, and Other Stories. Nunez was an explorer who discovered a village where everyone was blind, but over the generations had been able to hone their other senses. In addition, they developed stories about how the world "looks." When Nunez arrived and described the world as he—a man with vision—saw it, the villagers scorned him as a liar.
References
Arnott, Rob. 2011. "King of the Mountain." Fundamentals, Research Affiliates (September).
Greenspan, Alan. 2008. The Age of Turbulence: Adventures in a New World. New York: Penguin Press (p. 177).
Pleven, Liam. 2015. "Stock Prices: Is 'Quite High' Too High?" Wall Street Journal (May 15).
The Fed. 2015. "Yellen Says Stock Valuations Are 'Quite High,'" MarketWatch (May 6)
Tobin, James. 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit, and Banking, vol. 1, no. 1 (February):15−29.
Disclosures
The material contained in this document is for general information purposes only. It is not intended as an offer or a solicitation for the purchase and/or sale of any security, derivative, commodity, or financial instrument, nor is it advice or a recommendation to enter into any transaction. Research results relate only to a hypothetical model of past performance (i.e., a simulation) and not to an asset management product. No allowance has been made for trading costs or management fees, which would reduce investment performance. Actual results may differ. Index returns represent back-tested performance based on rules used in the creation of the index, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are not managed investment products and cannot be invested in directly. This material is based on information that is considered to be reliable, but Research Affiliates®and its related entities (collectively "Research Affiliates") make this information available on an "as is" basis without a duty to update, make warranties, express or implied, regarding the accuracy of the information contained herein. Research Affiliates is not responsible for any errors or omissions or for results obtained from the use of this information. Nothing contained in this material is intended to constitute legal, tax, securities, financial or investment advice, nor an opinion regarding the appropriateness of any investment. The information contained in this material should not be acted upon without obtaining advice from a licensed professional. Research Affiliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). Our registration as an investment adviser does not imply a certain level of skill or training.
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Chris Brightman, CFA, Chief Investment Officer, Research Affiliates, LLC
Jim Masturzo, CFA, Vice President, Asset Allocation, Research Affiliates, LLC
Noah Beck, Senior Researcher, Research Affiliates, LLC
