In the short term, anyone who has a theory about the stock markets will be right for the moment. In the long term, 95% of the theories will be good for the recycling box. The reason is no one knows what will happen in the next week or so, but in the next 10 years  we do know. In an article in the Globe John Reese writes according to Vanguard founder John Bogle there are 3 factors which will go a long way to predicting where the market will be 10 years out. The 3 factors are:

1. dividend yield
2. corporate earnings growth
3. speculative return – the change in what investors are willing to pay for each dollar of earnings (whether the P/E is rising or falling)

Currently the S&P 500 has a dividend yield of 2.1%. Historically corporate earnings has grown at 4.7% Add them together you get an investment return of close to 7%.  The speculative return is hard to gauge factor is a percentage point or two.

The point of the above shows that very real, generally stable factors drive the long term stock market returns. This means the market in the long term is about earnings and dividends. History has shown buying undervalued shares of solid business leads to better than market average returns.

In Mr. Reece’s models 3 stocks for you to consider are:

Thor Industries – owner of Airstream line of campers and trailers

National Oilweek Varco – the oil service companies have gone down, some by too much, the model shows this one should bounce back or return to higher values sooner.

ePlus Inc.  a Virgina based information technology company.

Linking to dividend paying stocks, there are many alternatives in dividend companies but for long term growth it is very hard to beat them.

There are more questions than answers, till the next time – to raising questions.