Taleb in his Black Swan book makes exactly the counter-point for this type of article that uses statistics and curves to predict and explain something that doesn't fit laws of averages and bell curves. Interesting read. The statistics of the article are just observational without any kind of predictive power or meaning.
Stock Market Returns Are Anything but Average
111–120 of 433 posts
Re: Stock Market Returns Are Anything but Average
#112I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…
The S&P had one 22-year drawdown in its history, the Great Depression. Second place was 4 years.
If people planned to contribute once in their life, the risk of buying the top before a long drawdown would be relevant.
Most people spend decades of their life buying investments. Even folks with bad luck seldom buy the absolute top -- positions acquired a couple months before are out of the drawdown that much sooner.
No backtest of typical investment patterns is going to see any 15-year net losses in the S&P's history.
Re: Stock Market Returns Are Anything but Average
#113I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…
> the returns can be negative (even in cases where you hold up to 15 years)
Are you certain? Are you taking into account potential deflation or other factors during that time?
There are some analyses that say that even if you bought at the height in 1929, you would actually still make you money back within 10 years. Here is an article from 2009 [1] suggesting that the very longest true downturn of the stock market was 8 years, during the recession of the 1970s.
1. https://www.nytimes.com/2009/04/26/your-money/stocks-and-bon...
Re: Stock Market Returns Are Anything but Average
#114Earlier quoted context omitted.
> depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) Sorry, but unless you're talking about truly black swan circumstances like the Great Depression or the 2008 crash, I don't believe for a second that, over a 15 year timespan, holding the S&P will result in negative returns frequently enough that a typical investor has to concern themselves…
The New York Times published the same sort of analysis in 2011: http://archive.nytimes.com/www.nytimes.com/interactive/2011/... Be sure to carefully read the description of the graph. Every time I link this, someone assumes that the green & red indicates are the yearly returns, but the entire point of this graph is that it is cumulative . If it is red 20-30 years into the line, that means that money put it at the beg…
Great visual!
So I'll just note a few things:
1) You can clearly see the Great Depression and 2008 in here, so I'm just going to ignore those.
2) The other really nasty period for market returns was during the 70s oil crisis and subsequent high inflation period.
It also notably marks areas "slightly above inflation" as red, which are not periods where loses would occur (though, yes, the gains would be basically flat). This strikes me as an odd choice and a misleading one that makes the historical analysis look worse than it actually is.
Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate.
I personally don't view this as justifying the claim that individual investors need to worry about market timing. If anything it reinforces my view that they shouldn't because no one could apriori predict the kinds of events that led to the red areas of that chart.
Re: Stock Market Returns Are Anything but Average
#115Earlier quoted context omitted.
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".
Something a lot worse will happen in 2038. I'll be keeping my system programming skills up to date for sure.
Re: Stock Market Returns Are Anything but Average
#116I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…
This is true, but it's easy to look back at historical data and draw conclusions from perfect information. When actually making an investment decision facing an unknown future, index funds are relatively low risk. This is why people actually buy them. Making the pool of companies smaller will only increase the volatility.
I would argue that psychologicaly the S&P offers the least optimistic promise of return for an investment a person would realistically make, since it is supposed to represent the market as a whole. People don't like to make an investment if they believe its quality is below-average, so expectation of average returns is really the minimum.
Re: Stock Market Returns Are Anything but Average
#117I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…
> Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) and in other cases quite good (best cases inflation adjusted annualized returns of 12% over 40 years).
Yes, timing is crucial. In your analysis, how much did timing change if you change the "sell date" into a 6 month window?
Re: Stock Market Returns Are Anything but Average
#118Earlier quoted context omitted.
Stock market returns make sense only when you realize the currency is actually just losing value. All currency is being devalued so you don't see it in currency pairs but scarce assets go up quickly.
I think that given how vast is USD influence, currencies all over the world will lose their value with dollar. But not every currency, economies that rely on mining natural resources more should have their currencies better against USD. This is not the case, as far as I can see.
Why would mining help? Resource extraction is the low end of earning potential. You mostly need the terrain and a willingness to pollute to break into it. It isn't that scarce. Industry makes much more than resource extraction and advanced services make more than industry.
Re: Stock Market Returns Are Anything but Average
#119There are all sorts of interesting facts you can pull out of this, like how if you missed the top 10 best days in the market from 1999-2019, your return was cut in half. If you missed the top 20 best days, you actually lost money: https://www.fool.com/investing/2019/04/11/what-happens-when-... Basically never mistake annualized return over a long period of time for your expected return in a given year (or day, etc).…
I think the way you should think about the stock market is similar to beating the Casino in blackjack & card counting. When you know the deck is rich ins face cards make more aggressive bets, when its low in face cards be frugal. I.e. don't put lots of money into the market when its hot & put more money in when its cold. That way you statistically have a better chance on getting a good return.
> I.e. don't put lots of money into the market when its hot & put more money in when its cold. That way you statistically have a better chance on getting a good return
Was the market hot in 2017, 2018, 2019?
Re: Stock Market Returns Are Anything but Average
#120I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…
> depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) Sorry, but unless you're talking about truly black swan circumstances like the Great Depression or the 2008 crash, I don't believe for a second that, over a 15 year timespan, holding the S&P will result in negative returns frequently enough that a typical investor has to concern themselves…
Sell in Feb 2009 and you'd have made a loss if you had entered at any point since May 1995
Buy at the peak in Aug 2000 and you'd have been in the red until Feb 2015
Invest in the Nov 1968 peak at 810 and you'd have seen red until Dec 1992
However invest $100 a month in 1985, increase your investment by 2% per year, and you'd have made a 388% profit by now, having invested $69420 (snigger) and have $338956 back.
That's excluding any dividends.