From Morningstar:

Baseball analyst Bill James recalls how in the past, players who hit 35 home runs in minor league seasons were brought up to the major leagues and deemed worth a look if they could hit 20 home runs. A Texas Leaguer named Ken Guettler smashed 62 home runs in one season, but his organisation ignored him.

US equities have delivered remarkable long-term returns. For instance, a $1 investment made in 1946 would now be worth $3,514. Adjusted for inflation, the real return would be $208, an impressive deal for doing nothing.

The growth of corporate earnings has been a major factor in the success of US equities. Earnings have steadily climbed, with companies earning far more currently than in the past. However, the increase in after-inflation corporate earnings only explains part of the equities’ total returns.

Investors now prize stocks more highly than in the past, leading to steeper price-to-earnings ratios, but the main contributor to equities’ success has been dividends. Companies achieving real earnings growth without reinvesting all their profits have greatly boosted stock returns.

Looking at the future, it’s estimated that US stocks could make an annualized real total return of 5.5% over the long term, with 2% for earnings growth and 3.5% for dividends or share buybacks. This prospect makes equity returns highly attractive and a potential home run.



Read more: Why Has The US Stock Market Done so Well? Will it…