Intelligent Investor - Ch. 3

[cookmg]

A couple of interesting points in Zweig's commentary in the back . . . I'd be interested in everyone's thoughts.

Applying the Gordon Equation in early 2003 Zweig estimates long run average stock returns of 6% given 1.5 to 2% long run average growth in corporate earnings, inflation of 2.4%, and average dividend of 1.9%.

Also, Zweig criticizes studies that show stocks have "always" outperformed bonds in the long run. He points out that most data prior to 1871 is based on just 7 stocks and that prior to the 1920s there is a heavy surviorshship bias in the existing data.

Given these two points, a defensive investor's reasonable expecations would have to be pretty low. Would it also suggest a more conservative allocation of stocks to bonds given the forcasted "risk" premium for stocks is lower than most of the 20th century?