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Long-term Sources of Investment Returns

  • U.S. equities have generated a total return of 8.9% p.a. over the last 130 years.
  • During this period, there were extended periods when real investment returns were negative.
  • This return is comprised of four components, namely multiple expansion, inflation, real earnings growth, and dividends.
  • Multiple expansion over the long-term is small enough that it can be ignored as a source of investment return.
  • Over the long-term, price appreciation returns earned from investing in equities, i.e., returns excluding dividends, approximately equals business value growth.
  • A simple process that successfully identifies businesses that have the sustainable ability to grow their business values at above average rates will generate superior investment returns.

Long-term Sources of Investment Returns

 

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