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Ask HN: Is the stock market's growth largely anything more than inflation?

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Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#111

Post by imtringued »

ckardat123 wrote: post #16
throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

What metric are you using for productivity growth per capita? The data I'm looking at shows around a 25% increase (inflation-adjusted) over the past 2 decades in the US. Source: https://ourworldindata.org/grapher/labor-productivity-per-ho... Intuitively, it certainly seems like humans are a lot more productive now than we were two decades ago with wider adoption of the internet

People don't seem to understand that an increase in productivity can result in a concentration of economic activity. Remember group assignments in school? It is often easier to just do the entire work yourself to avoid the cost of coordination. One guy is then doing 80% of the work. The problems start, when it is about paid work. If one very productive guy gets to do the work of five, the employer is going to fire the other four. The government borrows money, so that the unspent savings of the over productive saver are used (oversimplification, saved money is dead and newly borrowed money replenishes the loss) to create jobs for the other four. Our inability to share work forces us to grow the economy to keep everyone busy at work.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#112

Post by imtringued »

nick__m wrote: post #26
throw8383833jj wrote: post #15

Earlier quoted context omitted.

the most important thing is diversification. First of all, max out your 401K immediately and then get an IRA if you're income is low enough. Within there buy the SPY and maybe VTI (you want as much diversification as possible). Outside, of the 401K and IRA, you also buy SPY, VTI (but remember, you won't be able to sell that in any year where you make income above 40K because of "capital gains", lolz "gains", history…

Most importantly, try not to pick winners. that's a fools errand. Trying to pick winner is fun tought and it's a great way to learn. I don't think that there is something wrong with having a few percentage ( But start with index and etf because if you start with individual stock you are already over 10% ;) This series of articles https://www.investopedia.com/articles/basics/11/3-s-simple-i... gives a good overview of…

The problem is that uncontrolled emotions can lead to far worse losses than you could possibly gain so most people should just keep their urges in check and follow a boring strategy.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#113

Post by AnimalMuppet »

coned88 wrote: post #40
greenthrow wrote: post #28

That is not how inflation works. Anyone complaining about the government printing money has an incredible naive view on the economy.

Mind explaining then? To me printing money is always bad.

Let's say we have X amount of dollars. Time passes. The population increases, productivity increases, and now the economy (measured in actual stuff) is twice as big as it was. How many dollars should we now have?

If we have X, then each dollar is worth twice as much stuff (or, put differently, everything costs half as much). That's not a great outcome if, for example, you borrowed money to buy a house, and that loan specifies repayment of a fixed number of dollars. On the other hand, if you hid some dollars under your mattress, it's great. But it's unclear why society should want hiding dollars under your mattress to be the ideal investment strategy. That's not going to be optimal for society as a whole.

Or, we could have 2X dollars. Then each dollar will buy the same amount of stuff as before. That seems more reasonable. To do that, though, we have to increase the number of dollars in proportion to the growth of the economy as a whole.

(It's not that simple, of course. The velocity of money also matters. And the Fed is trying for 2% inflation, not zero.)

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#114

Post by imtringued »

theandrewbailey wrote: post #10

> The more money the government prints the more the stock market goes up. I'm not an economist, but I have some speculation (no pun intended): When the government prints money, most of it ends up with the rich. The smart rich know that it's unwise to have lots of money lying around, so they buy investment assets, like real estate and stocks. When quantitative easing started in 2008-ish, guess what got more expensive?…

>When the government prints money, most of it ends up with the rich.

That is also true of money "printed" by commercial banks. It is also true of money you spend. It is basically true of money anywhere in the economy.

Why? Because investment income i.e. capital gains scale with how much capital you have. If you can live off interest, your wealth is basically guaranteed to grow exponentially from that point onwards. You earn more than you spend, and the surplus is invested into assets that allow you to earn even more. It is a positive feedback loop that grows stronger and stronger over time. It has absolutely nothing to do with what the government does. It is purely the nature of compound interest.

The only thing the government can do is implement negative interest rates because interest rates go down as wealth concentrates. If interest rates become negative, then the rich no longer earn more than they spend from their capital. Instead, they must work to maintain the capital they have.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#115

Post by imtringued »

alaricus wrote: post #101
chii wrote: post #94

Earlier quoted context omitted.

which then encourages investment (it is, after all, what financial products end up being used to finance). This investment would, if done smartly, will produce more goods and services to justify the higher prices of those financial instruments. Thus, the economy grows. The financial growth leads the goods/services growth. Unless, of course, the financial growth is spent poorly (which is of course, totally possible),…

Not necessarily. How did the economy benefit from retail investors driving up the price of memestocks? Financial activity can be extractive.

That is true but honestly, it's only a problem with real estate and land.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#116

Post by imtringued »

SilverBirch wrote: post #72
mjevans wrote: post #44

Imagine a stock market where shares _had_ to be held for at least a week. Possibly even one where each day it was a dutch auction match of buyers and sellers during the overnight accounting. I think this would be a healthier form of investing in the ownership of companies.

I'm not sure what this has to do with this particularly question. However, what do you plan to do to tackle the massively increased spread due to lack of liquidity? Let's say I'm a market maker today. I can be a counter party to your trade safe in knowledge I can unload it in the next for microseconds. Under the new scheme I have to hold for atleast a day, this is a massive risk so I'll ask for an equally large premi…

Pretty much, liquidity preference doesn't go away just because you ban it. Christianity tried to ban interest and it didn't work.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#117

Post by ChrisLomont »

slv77 wrote: post #105
ChrisLomont wrote: post #103

Earlier quoted context omitted.

If you can predict future market behavior, then you can get rich by taking shorts/longs on your position. There's always some investors willing to take the opposite position. Good luck.

Some trends are hard to predict short term but easy to predict long term. The day weather forecasts are difficult to predict more then 10 days ahead but climate change forecasts have been very accurate. It is difficult to predict who will be diagnosed with cancer next year but relatively easy to predict cancer rates in the overall population in a given year. In the long term however we’re all dead so being proven rig…

>Some trends are hard to predict short term but easy to predict long term. The day weather forecasts

Just because weather is a series with such prediction characteristics has no bearing on asset prices having such prediction characteristics. By this reasoning, I could claim since some series are completely predictable, thus stocks are too. Since this level of hand waviness is clearly wrong in the latter case, it is also wrong in the former.

The fact is that asset prices represent value of underlying items, and if those items gain in value, then asset prices likely do too. Since not all asset prices grow or fall in lockstep, then there is always growth in investments possible, if you have enough insight to pick more growing and less shrinking assets.

And the entire set of assets is also likely to grow in value, since people are still working at creating more value.

>being proven right in 80 years time is meaningless to any investor being proven right in 80 years time is meaningless to any investor

True, since they very rarely care about 80 year investments. If they can obtain growth in the near term, then that is pretty much all they need.

So are you now saying there is growth possible, just not in 80 years? Or that you really just don't know?

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#118

Post by throw8383833jj »

ChrisLomont wrote: post #103
throw8383833jj wrote: post #47

Earlier quoted context omitted.

i meant, going forward from here. in the past, we had great returns due to increasing population, plus productivity increases and in large part due to dividends. all three of those are severly decreased going forward for the next 100 years.

If you can predict future market behavior, then you can get rich by taking shorts/longs on your position. There's always some investors willing to take the opposite position. Good luck.

What I stated about future returns vs past returns is quite well known in the financial community hence it's already priced into all the assets. there's no advantage in knowing something most other financial pros already know.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#119

Post by asadawadia »

david_shaw wrote: post #27
nootropicat wrote: post #24

Earlier quoted context omitted.

>Are there limits to the growth on a finite planet? Yes, but we are 4 orders of magnitude away from them. Adding the potential for space industry, this grows to 13 orders of magnitude. That's ~1000 years of 3% annual growth assuming no efficiency gains, but we still have about 8 orders of magnitude available in computation efficiency, which gives us about 1600 years of 3% growth until hitting 2 on the Kardashev scale…

> Yes, but we are 4 orders of magnitude away from them. Adding the potential for space industry, this grows to 13 orders of magnitude Would you mind providing a reference for this? I don't doubt your statements, but it would be great to be able to research further.

+1

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#120

Post by Sevii »

chii wrote: post #102
alaricus wrote: post #101

Earlier quoted context omitted.

Not necessarily. How did the economy benefit from retail investors driving up the price of memestocks? Financial activity can be extractive.

> How did the economy benefit from retail investors driving up the price of memestocks? GME did a secondary offering during the memestock rise in price. https://www.shacknews.com/article/125255/gamestop-gme-comple... it created funding, which they could've used to pivot their business. Whether they use this money wisely to generate more profit is a different question, but you'd expect a business to generally try. Jus…

The concern is that with enough printing (aka 2020-21) there aren't enough wise investments to put the money into. If capital is already cheap, even cheaper capital doesn't help anyone.
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