Stock Market Returns Are Anything but Average • Hacker News Board

Re: Stock Market Returns Are Anything but Average

#21

Post by muskox2 » Fri, Apr 30, 2021, 1:09 PM UTC

staticman2 wrote: post #12

tarruda wrote: post #5

Earlier quoted context omitted.

Instead of seeing as high returns, you can also look at it as money losing value due to excessive printing of last year.

Except measuring the value of money as something other than the ability to provide consumption (the ability to buy things you consume, rather than investments) doesn't make sense, regardless of how fashionable it is on this site to throw around the term "asset inflation".

What is your explanation for the explosion in asset prices over the last year, if not inflation? Do you think the assets have become fundamentally more valuable?

Re: Stock Market Returns Are Anything but Average

#22

Post by bryanlarsen » Fri, Apr 30, 2021, 1:10 PM UTC

ahelwer wrote: post #14

ArtTimeInvestor wrote: post #11

The author falls for the "past equals future" fallacy. The only way to truly take the randomness out of the stock market is to have a multi-decade time horizon. He says so after looking at the data of a few decades. That makes no sense. It is like looking at 3 people and saying "People come in groups no larger than 3". The whole article is based on that premise. He has something like 90 data points and assumes the ne…

I mean yes, past performance doesn't guarantee future results. But it does waggle its eyebrows suggestively at it, when you have a phenomenon that's gone unchallenged for probably a hundred years now. It isn't guaranteed. But nobody's lost their shirt betting it'll continue yet . People always bring up Japan in these discussions, of course. The Nikkei 225 peaked on 29 December 1989, still only at half that value over…

Or the German stock market of 1914. An 1914 investor would have had to have held for 100 years to get his investment back.

The major point is that only looking at 90 years of American stock market returns is very serious cherry picking. We can get a lot more data by including non-American stock markets. The last century was a century of American ascendance. 100 years from now America still might be at the top, but I wouldn't take that bet. Even if it is, we won't get the gains we got from rising to the top.

Re: Stock Market Returns Are Anything but Average

#23

Post by jimbokun » Fri, Apr 30, 2021, 1:11 PM UTC

ArtTimeInvestor wrote: post #11

The author falls for the "past equals future" fallacy. The only way to truly take the randomness out of the stock market is to have a multi-decade time horizon. He says so after looking at the data of a few decades. That makes no sense. It is like looking at 3 people and saying "People come in groups no larger than 3". The whole article is based on that premise. He has something like 90 data points and assumes the ne…

The author makes clear that the next 30 years may very well not follow this trend, given the entire dataset contains only 95 data points.

Re: Stock Market Returns Are Anything but Average

#24

Post by thrower123 » Fri, Apr 30, 2021, 1:12 PM UTC

ycombinete wrote: post #3

hpkuarg wrote: post #2

I mean, just look at last year, when the S&P 500 index plunged over 30%, then proceeded to nearly double from then until now, in the midst of a global pandemic that froze big chunks of the world economy. Stock market returns make no sense.

I’ve made 15% on an 80/20 VWRA/IGLA split since September 2020. It scares me. It feels like too much. Like it’s going to pop.

It's been a long, long run. If you ignore the drop from last March that was recouped within months, it's been a strong ramp ever since the second half of the Obama presidency. Vanguard tells me I've done better than 16% over that period, just invested in the boring VTSAX index fund.

Re: Stock Market Returns Are Anything but Average

#25

Post by ahelwer » Fri, Apr 30, 2021, 1:12 PM UTC

bryanlarsen wrote: post #22

ahelwer wrote: post #14

Earlier quoted context omitted.

I mean yes, past performance doesn't guarantee future results. But it does waggle its eyebrows suggestively at it, when you have a phenomenon that's gone unchallenged for probably a hundred years now. It isn't guaranteed. But nobody's lost their shirt betting it'll continue yet . People always bring up Japan in these discussions, of course. The Nikkei 225 peaked on 29 December 1989, still only at half that value over…

Or the German stock market of 1914. An 1914 investor would have had to have held for 100 years to get his investment back. The major point is that only looking at 90 years of American stock market returns is very serious cherry picking. We can get a lot more data by including non-American stock markets. The last century was a century of American ascendance. 100 years from now America still might be at the top, but I…

The ultimate point of these discussions is coming to a conclusion about "what should we do?". I can give you quite a few reasons why dumping all your money in market index funds could end in disaster. I'm not under the illusion these gains are guaranteed. But what the hell else am I going to do?

Re: Stock Market Returns Are Anything but Average

#26

Post by JackFr » Fri, Apr 30, 2021, 1:13 PM UTC

This is hand-wavy feel-good stuff, and it isn't terribly wrong but saying true things about long term returns is very difficult. Adjustments for inflation, interest rates, dividends, corporate tax rates, individual tax rates, index/portfolio construction, selection bias, etc. all need to be considered if you want to try to draw serious economic conclusions.

Re: Stock Market Returns Are Anything but Average

#27

Post by berkes » Fri, Apr 30, 2021, 1:13 PM UTC

Someone1234 wrote: post #8

hpkuarg wrote: post #2

I mean, just look at last year, when the S&P 500 index plunged over 30%, then proceeded to nearly double from then until now, in the midst of a global pandemic that froze big chunks of the world economy. Stock market returns make no sense.

It starts to when you ask yourself: Where else are people meant to store money? Since interest rates and bond rates were at historical lows. So you have people who are looking at 10% YOY returns on one hand and 0.2%/2% on the other and making the rational decision. Does this make stocks overinflated? Yes. Is it going to suddenly pop? Unlikely, since the conditions that caused it won't suddenly change (e.g. certain bo…

> Is it going to suddenly pop? Unlikely..

This is not financial advise, but an investor myself, I'm on the other end of the spectrum. "Is it going to suddenly pop? Certainly! We just don't know when, how much and for how long. It could be june 2021, it could be 10 years after the Great Sino-Russian war of 2038".

Re: Stock Market Returns Are Anything but Average

#28

Post by bryanlarsen » Fri, Apr 30, 2021, 1:14 PM UTC

Someone1234 wrote: post #8

hpkuarg wrote: post #2

I mean, just look at last year, when the S&P 500 index plunged over 30%, then proceeded to nearly double from then until now, in the midst of a global pandemic that froze big chunks of the world economy. Stock market returns make no sense.

It starts to when you ask yourself: Where else are people meant to store money? Since interest rates and bond rates were at historical lows. So you have people who are looking at 10% YOY returns on one hand and 0.2%/2% on the other and making the rational decision. Does this make stocks overinflated? Yes. Is it going to suddenly pop? Unlikely, since the conditions that caused it won't suddenly change (e.g. certain bo…

We get articles on HN about once a week arguing that massive inflation is coming soon. I think all of these articles are misguided. With such low interest rates, the Fed can and will raise those rates to prevent inflation.

That interest rate rise will likely pop the bubble.

Re: Stock Market Returns Are Anything but Average

#29

Post by clomond » Fri, Apr 30, 2021, 1:14 PM UTC

nocommentguy wrote: post #13

hpkuarg wrote: post #2

I mean, just look at last year, when the S&P 500 index plunged over 30%, then proceeded to nearly double from then until now, in the midst of a global pandemic that froze big chunks of the world economy. Stock market returns make no sense.

More like the value of the dollar has roughly halved due to record money-printing and this is reflected in capital assets firsts. https://fred.stlouisfed.org/graph/fredgraph.png?width=880&he... MMT apologists are the modern day petit bourgeois. Trust the experts!

The value of the dollar has not halved....

Against a basket of currencies, the US dollar index is approximately 10% lower than it was from the start of the pandemic. Pointing to the fed money supply chart as evidence is woefully misleading.

Dollar index historical: https://tradingeconomics.com/united-states/currency

Re: Stock Market Returns Are Anything but Average

#30

Post by staticman2 » Fri, Apr 30, 2021, 1:15 PM UTC

nocommentguy wrote: post #17

staticman2 wrote: post #12

Earlier quoted context omitted.

Except measuring the value of money as something other than the ability to provide consumption (the ability to buy things you consume, rather than investments) doesn't make sense, regardless of how fashionable it is on this site to throw around the term "asset inflation".

Actually, measuring the value of money as something other than the measuring stick to compare capital assets doesn’t make sense, regardless of how fashionable it is to defend money printing by verysmart internet economists. See what I did there? It’s not an argument.

Okay, let's phrase this another way.

If your ability to consume food, water, shelter, and entertainment has not been impaired but you are complaining about "asset inflation" because you learned economics from message boards perhaps you are being haunted by nonexistent boogeymen and need to chill out?