Let's say you do this exercise and arrive at a discounted cash flow model that accurately predicts a 5-10% YoY appreciation in value for the S&P index.
How do you explain why this appreciation in value isn't arbitraged away, as suggested by GP? In his words, "if 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% interest rate and invest it in S&P?" This would effectively drive up the current day price and eliminate any projected future growth in index price -- invalidating the hypothesis that the S&P price will continue growing in the future.
Re:SoftBank’s debt obsession
by omarchowdhury on Tuesday November 06, 2018 @07:13PM
(#18396109)
It's not arbitraged away because it's not guaranteed.
Re:SoftBank’s debt obsession
by toomuchtodo on Tuesday November 06, 2018 @06:02PM
(#18395666)
How would you account for central bank actions?
Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretically solid for any closed economic system. (Cf: natural resource inputs are not properly accounted for.)