Deep Store

John Bogle's expected-real-return decomposition for equities, applied to long-run data: `implied real return = earnings yield + 10-year trailing real EPS growth`. The intuition is that at any price you "earn" the earnings yield as cash, plus you compound whatever the underlying earnings growth is.

Why it matters: It's a single number that reads as "given today's valuation and the rate at which earnings have actually been growing, what real return are equities priced for?". A 4% earnings yield with 4% real EPS growth implies ~8% real annual returns; the same 4% yield with flat earnings implies ~4%. Plain earnings yield ignores the growth side entirely; this fixes that. It's also robust to negative growth — flat or shrinking earnings just lower the implied return without blowing up the metric.

How to read it: Long-run average is roughly 6-8% real. Sub-4% readings have historically marked late-cycle excess (priced for poor returns); above 10% appear at major lows when earnings yield is high *and* growth has been positive (early 1980s, briefly 2009). Compare against a real bond yield (like ECY's denominator) to get a growth-adjusted equity risk premium.

Caveats: Uses *trailing* 10-year EPS growth as the growth proxy — it's a backward-looking estimate of the forward growth rate. Periods where future growth diverges sharply from the past 10 years (eras of structural change) make this a less reliable forecast. Best used as one of several lenses, not as a standalone return forecast.