Via Alexander Gloy of Lighthouse Investment Management,
Stock market performance during bull markets is mainly (89%) explained by the duration of the bull market (defined as an uptrendwithout any pull-backs of 20% or more). The conclusion: As long as no shock rocks the boat, the expected market return is +22% per annum. The current bull market (+117%) is a tad ahead of the expected performance. Time-dependency matters more in bull markets. In bear markets, fundamentals (or initial conditions) matter most. What does this mean for current market environment? Valuation is, depending on what you look at, either cheap (P/E ratio) or expensive (P/E 10,Tobin's Q, regression etc). Hence, all eyes have to be on the look-out for any external shocks.