Probable Outcomes

Probable Outcomes by Ed Easterling.

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Crestmont Research’s Ed Easterling is a fellow traveler — a student of long term secular bull and bear markets.

If you are interested in valuation, sentiment, historical data and sound principles, Easterling is your guy. I have repeatedly referenced his first book, Unexpected Returns: Understanding Secular Stock Market Cycles, over the years as a solid explantory of how markets cycle over decades.

A combination of investment science and art, Probable Outcomes describes the common approach of irrational hope versus a more rational view of the stock market in this book. And, I am a sucker for all of the full-color charts and graphs it contains.

Reviews:

Easterling has done it again. In an investing world obsessed with short-termism, Ed reminds us that the long-term matters, and that investors can prosper – handsomely – by recognizing that valuation and long-term secular trends have an immense impact on our own long-term investment success. Swimming against the current is for heroes and idiots, not for sensible mortals.
-Rob Arnott, Chairman & Founder, Research Affiliates, LLC; Former Editor, Financial Analysts Journal

As a practitioner and a teacher of finance and economics, I am captivated with Easterling’s insights and quantification of the important and critical role of price stability in producing superior investment returns.
-Harvey Rosenblum, Executive Vice President and Director of Research, Federal Reserve Bank of Dallas; Adjunct Professor of Finance, Southern Methodist University

Ed Easterling has hit another home run! Probable Outcomes is a brilliant follow-on to Unexpected Returns and masterfully explains, in an understandable way, the most likely directions for the stock market over the next decade. This essential resource prepares investors to succeed in volatile and challenging times. You will profit from the many valuable insights that are much more effective than hope. 
-John Mauldin, Thoughts from the Frontline

Probable Outcomes makes a strong case that the stock market over the coming decade at best will deliver only average returns to buy-and-hold investors. Once again, as in his splendid earlier book, Unexpected Returns, Ed Easterling tells investors not what they would like to hear, but instead what they need to know.
-Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, NYU Stern School of Business; coauthor of A History of Interest Rates

Full chapter after the jump.

Probable Outcomes Ch 9 Excerpt

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Chapters/TABLE OF CONTENTS

SECTION I: PAST AND FUTURE

Chapter 1: What’s Ahead
Aspiring Average
A Few Details

Chapter 2: Unexpected Returns Revisited
Secular Stock Market Cycles
Current Secular Bear Market
Still Not Halfway
Distance, Not Time
What To Do About It
Financial Physics

SECTION II: ECONOMICS FOR FINANCIAL PHYSICS

Chapter 3: It’s the Economy
Pop Quiz
Why Economics Is Relevant
Key Economic Measures
Key Economic Drivers
Fallacy of Consumption
Government Productivity
Final Thoughts

Chapter 4: Inflation Infatuation
Inflation in the Economy
Measures of Inflation
A Second Measure
Risks of Inflation
But Do Deficits Matter?
Deflation Gets Its Due

Chapter 5: Earnings Recycled
Economy and Earnings
Concepts to Consider
The EPS Cycle
Nearly Normal

SECTION III: FINANCE FOR FINANCIAL PHYSICS

Chapter 6: The Value of Being Present
Present Value
Discount Rate and Inflation
The Force

Chapter 7: Getting to P/E
Morphing P/E
Method Matters
Every Few Years or So
Natural High
Validation
Game Changer

Chapter 8: Great Theories and Busted Myths
Efficient-Market Hypothesis
Modern Portfolio Theory
Cousins CAPM and MPT
Monte Carlo Is a Bad Bet

SECTION IV: SECULAR STOCK MARKET CYCLES

Chapter 9: From Several Perspectives
The Long-Term View
Decades, Not Centuries
Influence and Power
A Look Inside
Volatility in Perspective
Early Conclusions

Chapter 10: Better Than Hope
Coming Back In Style
Diversification
Absolute vs Relative
Risky Business
Discipline
Capture and the Impact of Losses
Hope Is Not A Strategy

SECTION V: THE BIG DILEMMA

Chapter 11: Practical Implications
Chunks, Not Streams
Accumulation
Distribution
Institutionalizing Pensions
Clean Up Your ROOM

Chapter 12: The Four Bears
Effects
Implications
Rainbows
Wrap-up