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Article

Occam’s Razor Redux: Establishing Reasonable Expectations for Financial Market Returns

John C. Bogle and Michael W. Nolan
The Journal of Portfolio Management Fall 2015, 42 (1) 119-134; DOI: https://doi.org/10.3905/jpm.2015.42.1.119
John C. Bogle
is the founder and former chairman of the Vanguard Group and president of Vanguard’s Bogle Financial Markets Research Center in Valley Forge, PA.
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  • For correspondence: john.c.bogle@vanguard.com
Michael W. Nolan
is senior investment analyst at Vanguard’s Bogle Financial Markets Research Center in Valley Forge, PA.
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  • For correspondence: michael_nolan@vanguard.com
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Abstract

Reasonable expectations for capital markets returns are the foundation on which all investment programs are built. The model used to develop these critical expectations does not need to be complex. Rather, inspired by Sir William of Occam’s Law of Parsimony, the authors review a model for developing reasonable expectations that was first articulated in a 1991 issue of The Journal of Portfolio Management. The model is simple and intuitive. The authors describe its effectiveness over the 25 years since the model was first applied and provide their view on reasonable expectations for stock and bond market returns in the decade ahead. They close by discussing the model’s implications for investors and the financial sector.

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Occam’s Razor Redux: Establishing Reasonable Expectations for Financial Market Returns
John C. Bogle, Michael W. Nolan
The Journal of Portfolio Management Oct 2015, 42 (1) 119-134; DOI: 10.3905/jpm.2015.42.1.119

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Occam’s Razor Redux: Establishing Reasonable Expectations for Financial Market Returns
John C. Bogle, Michael W. Nolan
The Journal of Portfolio Management Oct 2015, 42 (1) 119-134; DOI: 10.3905/jpm.2015.42.1.119
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  • Article
    • Abstract
    • ENTERPRISE AND SPECULATION
    • QUANTIFYING THE SOURCES OF STOCK RETURNS
    • A QUARTER-CENTURY OF ACTUAL RESULTS
    • A TOUGH OPENING DECADE
    • A CENTURY-LONG EVALUATION OF THE BSRM/S
    • WARNING: LIMITED ACADEMIC SUPPORT FOR BSRM/S
    • FROM STOCKS TO BONDS
    • WHAT’S AHEAD FOR STOCKS AND BONDS
    • CAUTION: FEW INVESTORS CAPTURE (OR EXCEED) THE MARKETS’ RETURNS
    • A REASONABLE ALTERNATIVE
    • CHALLENGE ONE TO BSRM/S: WHAT ABOUT THE EQUITY PREMIUM?
    • CHALLENGE TWO TO BSRM/S: WHAT ABOUT SHARE BUYBACKS?
    • SOME BENEFITS OF THE BSRM
    • IMPLICATIONS OF THE BSRM FOR MONEY MANAGERS AND INVESTORS
    • THE NEW MUTUAL FUND INDUSTRY
    • Appendix
    • ENDNOTES
    • REFERENCES
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