The Next Thirty Years

I brought up the Scenario Surfer Generator to get an idea of how the next thirty years in the stock market might to play out.

It is a time for caution. At the same time, the market could still reward the reckless. Both are consistent with the past.

Ten Samples

I collected ten possible sequences from the Scenario Surfer Generator. I selected a (long lasting, secular) Bear Market condition. I set P/E10=26.

The Scenario Surfer Generator uses the same algorithms as the Type 2A Bull Bear Retirement Trainer. It uses an advanced Monte Carlo model. The algorithms include two forms of Mean Reversion.

I have placed a copy of the data into my Yahoo Briefcase. It is in the Scen Surf Gen Data A file in the Retirement Trainers folder.

Yahoo Briefcase

Data Highlights

Low Balances:
Lows below 50%: 0.483 in Run 3 year 7.
Lows from 50% to 60%: 0.539 in Run 8 year 16.
Lows from 60% to 70%: 0.617 in Run 2 year 8; 0.651 in Run 4 year 9; 0.633 in Run 7 year 9.
Lows from 70% to 80%: 0.763 in Run 1 year 8; 0.798 in Run 6 year 7.
Lows from 80% to 90%: 0.873 in Run 5 year 7.
Lows above 90%: Runs 9 and 10.

Super Bubbles:
P/E10 above 30: 30.1 in Run 2 year 2; 34.0 in Run 5 year 4; 30.3 in Run 8 year 1; 38.7 in Run 9 year 2; 33.9 in Run 10 year 4.

Summary

Notice how long it can take for the portfolio balance to hit its low. These are cumulative returns. Five out of ten samples fell below 70% of the starting balance, all at year 7 or later. Seven out of ten samples fell below 80% of the starting balance, all of the lows being at year 7 or later.

On the other hand, three runs out of ten escaped any serious loss.

Five out of ten samples saw P/E10 rise above 30 in a long lasting (secular) Bear Market. Such is the nature of randomness in the stock market.

Have fun.

John Walter Russell
November 4, 2007