Ron Baron Thinks Stocks Will Double In 10 Years

by: Roger Nusbaum

Ron Baron was on CNBC on Friday morning and among other things he said he believes stocks will double in ten years. For him to be correct, the equity market would need to go up an average 7.2% per year. He also thinks that stocks will double again in the subsequent ten years.

The market just doubled in a three year stretch although that came via a decline so great that many people literally thought the financial world was ending. If the pendulum is finished swinging from the crisis then averaging 7.2% per year from (I will expand Baron's comment to say) global equities is plausible. To repeat from many years'-worth of past posts, returns will not be linear. We may average 7.2% but there will be years that are much better than and much worse than 7.2%. Visibility for one of the much worse years is whenever the Fed really does taper. I don't believe the unwind will be worse than the crisis but that is just an opinion that could of course turn out to be incorrect.

One idea here all along has been that equities are not permanently broken. Just like the 2000s, there have been other decades (give or take a couple of years) where stocks had a volatile round trip to nowhere. Technically speaking this decade has been a good one for domestic equities.

Baron's comment is meant to get people to think about the long term (like in ten year increments). If you knew for a fact that on June 28, 2023 the S&P 500 would be at 3228, then how concerned would you be during the bear market of 2017 (just an example, not a prediction) even if the market went down 60%? The question assumes proper asset allocation with a reasonable emergency-cash balance.

We can't know where stocks will be in ten years or any other time frame but in terms of normal stock market function, we know that stocks do tend to be higher in ten year increments even with several spectacular exceptions and again the assumption here is that equities are not permanently broken.

Understanding this big-macro perspective should make navigating short term events much easier.