At the CFA annual conference, I won a sleeve of golf balls at the start of the CBOE-sponsored session that I wrote about in an earlier posting.  The prize was for answering where investor expectations for returns were in 1999.  Amazingly, I had talked about the investor surveys from that time the night before with the person who was sitting next to me when the question was asked.  So, it was easy pickin’s, as they say.

There were a variety of surveys done back then that all showed expectations had gotten out of whack.  The most famous numbers came from SIFMA (the Securities Industry and Financial Markets Association, then known as the Securities Industry Association), in response to the question, “What do you consider to be a respectable return on your investments?”  The results appear above for a few years in the middle of a chart that also shows the actual annualized returns on the S&P 500 for one-year and five-year periods.

The simple averages on the SIFMA survey were 30% or more for a couple of years running.  The medians were more muted, but still comfortably above long-run average returns, at a time when valuations were in the stratosphere.

I tried to contact SIFMA about its surveys but never heard back.  I think it’s safe to assume that the 2004 version was the last one that was done, since as of this writing if you click on “Investor Attitude Survey” on its website, that’s what comes up.  The last page of that document conflates median with mean and gives two different results for the same year, so it makes you wonder about the quality of the work (most of the numbers above are from the previous year’s edition) or why SIFMA has left it up all these years.

Past returns are a powerful driver of expectations, framing our impressions of the future, as any beginning student of behavioral finance knows.  Investor surveys are one way of judging those expectations, however crudely, but it’s not easy to find consistent data over time.  Surveys come and they go, as SIFMA’s relatively brief foray demonstrates.

Given the relentless downward trajectory of the red line above and the low interest rate environment (and daunting bond math) that investors face, where do you think expectations are today?  What is a “respectable return” now?  To judge by what I saw at the CFA conference, investment professionals are relatively downbeat about the business and the markets.  There’s a lot of that going around.

(Chart:  Bloomberg terminal.  The median and mean converged in the 2003 SIFMA survey.  The 2004 data point comes from the answer to a somewhat different question than the one for the other years.)

Each of the postings about the CFA conference is indexed in this handy PDF.

they call it innovation

Two panels at the conference squared off on issues of market structure.  However, though they call it innovation, I don’t think that’s really what we’ve seen — and buy-siders have been bystanders.  They need to step up.