This podcast episode discusses the reversion to the mean in asset class returns, focusing on the US stock market's performance. Host David Stein analyzes the impact of factors like valuation changes, earnings growth, and passive investing on stock market returns, referencing research by Robert Arnott. He highlights the risk of assuming past high returns will continue, citing examples of long periods where stock prices didn't appreciate, and suggests diversifying beyond US stocks due to their current high valuations. The episode concludes by emphasizing the cyclical nature of market returns and the importance of considering valuation multiples when forecasting future returns, using the Shiller earnings yield as an example. Listeners are encouraged to use tools like AssetCamp to analyze market data and make informed investment decisions.
