Great Expectations

By Charlie Bilello

17 Sep 2020

“Ask no questions, and you’ll be told no lies.” – Charles Dickens, Great Expectations

What returns are you expecting from equities going forward?

“At least 20% a year.”

That was a conversation I had last week with an investor. It gives you an idea where we are in terms of sentiment.

How did they arrive at 20%?

Simple. They saw a stat showing the annualized return of the Nasdaq 100 ETF ($QQQ) over the past 10 years.

What did it show?

The highest 10-year return ever for the Nasdaq 100 ETF: 22.36% per year at the end of August.

(note: QQQ’s inception was March 10, 1999)

Created in YCharts

These are the total returns for the Nasdaq 100 Index since 2009…

  • 2009: +55%
  • 2010: +20%
  • 2011: +4%
  • 2012: +18%
  • 2013: +37%
  • 2014: +19%
  • 2015: +10%
  • 2016: +7%
  • 2017: +33%
  • 2018: +0.04%
  • 2019: +39%
  • 2020 YTD (Through August): +39%

“Why shouldn’t the next 10 years be the same? These are the best companies in the world and technology is more important than ever before.”

Indeed, the only problem is that most everyone agrees with that statement today, hence the massive appreciation over the last 10 years.

The question is how they will feel in 10 years time. Will their lofty expectations be met and will they continue to pay a high multiple in the future?

No one knows the answer to that question, of course, but the odds do not seem to favor a repeat performance.


The market was in a much different place 10 years ago. The US had only recently exited the worst recession since the Great Depression and the Nasdaq 100 had just returned -7.88% per year in the previous 10 years.

That’s not a typo. Investors who bought $QQQ on August 31, 2000 would lose 7.88% per year over the next 10 years. That’s a 56% decline in total.

This is what a chart of that looks like…

Created in YCharts

Needless to say, investors were not very optimistic about the future in 2010, and valuations were reflective of that. No one was expecting anywhere near 20% returns per year going forward. After what they went through, they probably would’ve been happy with a few percent per year.

Today we have the opposite situation, where recessions are deemed to be a good thing (because it means more government stimulus and an easier Fed), IPOs are doubling on their opening day, and SPACs are all the rage. It’s hard to envision a scenario in which the future looks any different.

Unfortunately, it is these great expectations that have always been the enemy of future returns. We’ve seen that time and again throughout investing history.

“But this time is different.”

Every time is different. This is not March 2000, October 2007, or February 2020. Even if this is “the top” what comes next will most certainly not be the same.

But when expectations are as high as they are today, it’s wise to understand what that means and keep your emotions in check.

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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

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