A. While it's impossible to predict stocks' future movements, many people still try to do that, especially during this time of the year. But when it comes to stock movement prediction, it has been shown that extremely basic formulas are often superior than complicated systems. Below is a very simple system used by John Bogle, the founder of Vanguard Group.
Based on John Bogle's theory, the stock's future return is driven by 3 key factors:
- Yield: annual dividends divided by stock price, currently about 2.2%.
- Earnings growth: this year's earning over last year's earning, historical average is 4.7%.
- Speculative return: how much investors want to pay for stocks, currently S&P 500 has PE about 23.