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Just started to read the book 'The Little Common Sense of Investing' by John C.Bogle. In chapter 2 of the book, the author talks about investment return and market return. I tried to search on the Internet to find out how these two terms differ but couldn't find one .My questions are following:

  1. what is the subtle difference between investment return and market return?

  2. According to the book, investment return includes dividend yield and earnings growth(however we all know that earnings growth is nothing but rate of increase of eps and since eps(earnings per share) is just a metric to test company's performance and is not paid out to common investors, as a investor how can I consider it as a return)

  3. John C Bogle also included speculative return on market return, now what does this speculative return imply in a easy language?

I'm attaching the screenshot investment vs market return vs speculative return

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The reason that you could not find explanation by generally searching on the internet is that the usage of those terms are specific to Bogle and a few other "investment managers".

In essence, this page is a non-academic model to "explain" the factors correlated with stock market return.

In the context of this book "investment return" means "modeled return" or "predicted return" in general sense.

In the context of this book "market return" means "total return" or "actual return" in general sense.

Back to your questions:

  1. The difference between investment return and market return is the difference between "predicted return" and "actual return".

  2. Yes EPS is just a metric, and Bogle believes that this metric "correlates" with return. Stock market can be correlated with many things. You can throw in global average temperature and it is correlated with stock market (because Global Warming has same long term trend as Stock Market). In this case, Bogle only discovered the somewhat correlation when using the EPS + Dividend formula.

  3. The easy language for the "speculative return on market return" is the "unexplained factor" or "unmodeled factor" by Bogle beyond EPS and Dividend. Such factor constitutes the difference between "predicted return" and "actual return".

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