Ratio of Corporate Profits-to-GDP and Returns (1947 to Present)
Source: Hussman Weekly Comment “Taking Distortion at Face Value,” (April 8, 2013)
Warren Buffett, 1999
[F]rom 1951 on, the percentage settled down pretty much to a 4% to 6.5% range.– Warren Buffett, Mr. Buffett on the Stock Market (November 1999)
In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be competition, which is alive and well.
Jeremy Grantham, 2006
Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.– Jeremy Grantham, Barron’s (c. 2006), via Katsenelson, The Little Book of Sideways Markets.
John Hussman, 2013
In general, elevated profit margins are associated with weak profit growth over the following 4-year period. The historical norm for corporate profits is about 6% of GDP. The present level is about 70% above that, and can be expected to be followed by a contraction in corporate profits over the coming 4-year period, at a roughly 12% annual rate. This will be a surprise. It should not be a surprise.– John Hussman, Two Myths and a Legend (March 11, 2013)