- 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
