The blogosphere is currently aflutter with this topic.
This is something that John Hussman has done consistently as part of his strategy since inception. There are many different formulae presented in his weekly notes that are good for valuation on stocks.
As an example, I provide the image from this article which uses dividend yield to forecast returns
If you go check out John Hussmans writings, or stuff by Bill Gross, etc, they are all forecasting a very low 10Y CAGR in stock indices using these methods. (http://gestaltu.blogspot.com.au/2012...rd-for-it.html)
Here is, for example, the CAPE and dividend forecast valuation equation from Hussman
There is an assumption of ~6% growth based on the peak-peak trend in SP500 earnings growth.2) Shorthand Shiller Model – see The Siren’s Song of the Unfinished Half Cycle:
1.063 * (15 / ShillerPE)^(1/10) – 1 + Dividend_yield (decimal)
3) Dividend Model – see Estimating the Long-Term Return on Stocks (1998):
1.063 * (Dividend_yield / .037)^(1/10) - 1 + (Dividend_yield + .037)/2
What I was wondering if is anyone uses similar methods here on the ASX, do they find valuation offers the same strong forecasting tool for long term returns on the ASX as it does in the US? My guess is yes but would love to see a chart or two.