Ratio of Corporate Profits-to-GDP and Returns (1947 to Present)
Warren Buffett, 1999
[F]rom 1951 on, the percentage settled down pretty much to a 4% to 6.5% range.
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.
– Warren Buffett, Mr. Buffett on the Stock Market (November 1999)
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)