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Stock Market Returns Are Anything but Average

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Re: Stock Market Returns Are Anything but Average

#121

Post by bob1029 »

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…

This is a very tiresome argument that I have to continuously have with friends & family.

These days I just sit on the sidelines and watch people I care about throw money into raging infernos because they genuinely believe that a historical time series has some notion of inertia/momentum/hocus pocus/etc behind it.

After a certain point you have to stop trying to save other people from shitty ideas or you will drive yourself mad.

Re: Stock Market Returns Are Anything but Average

#122

Post by dnadler »

jerf wrote: post #102
CarelessExpert wrote: post #88

Earlier 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…

This is a good visualization, I think. Interesting that they include taxes here, though, as that can vary quite a bit by individual circumstance, and most long-term retail investing is probably done in tax-advantaged accounts like 401ks. Also, it's important to note that this appears to be in real terms, and so the period in the 70s to 80s is somewhat extraordinary. -2% annual return vs ~10% inflation isn't great, but also far better than cash.

All that said, it does show that the longer you hold, the more likely you are to achieve an average positive return. Note that the only negative return (again in real terms) is the darkest red.

Again, just to drive the point home, the neutral color 3%-7% return is after inflation. If the long-run average inflation is 2%, then this is 5%-9% average annual return which almost exactly tracks the common assumptions surrounding long-term buy & hold.

Re: Stock Market Returns Are Anything but Average

#123

Post by kingsuper20 »

lotsofpulp wrote: post #110
kingsuper20 wrote: post #104

The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turchin (cliodynamics) a peaking cycle in civic unrest, a potential loss of reserve currency status, big changes in tech that still haven't been digested, low cost of transactions. Lotsa opportunities for froth. I'm still uncomfortable with it as a store of value. N…

> You could argue that the entire market is a mania. Objectively, the big publicly listed companies are growing and have stellar financials. I can think of no better place for someone to invest, other than maybe diversifying into real estate with high demand, if they already have a significant amount invested in public equity markets. Public equity market prices are also backed by the federal government, at least on…

It's worth considering that what you are buying is a dividend stream and/or the possibility of a company being bought, which simply gives you more stock. When you essentially lend money to GOOGL or AMZN, what are you actually getting back besides a story?

Don't get me wrong, in the timespan of an individual's life it may well make sense to heavily buy into this system. I'm just making the point that it's current form is rather new and appears loosely connected to the real world and is subject to change.

To me, the current stock market seems like a fiat currency without the threat of physical force. Maybe the temptation will be to increasingly merge government with large companies in order to keep the plates spinning.

Re: Stock Market Returns Are Anything but Average

#124

Post by PragmaticPulp »

lotsofpulp wrote: post #110
kingsuper20 wrote: post #104

The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turchin (cliodynamics) a peaking cycle in civic unrest, a potential loss of reserve currency status, big changes in tech that still haven't been digested, low cost of transactions. Lotsa opportunities for froth. I'm still uncomfortable with it as a store of value. N…

> You could argue that the entire market is a mania. Objectively, the big publicly listed companies are growing and have stellar financials. I can think of no better place for someone to invest, other than maybe diversifying into real estate with high demand, if they already have a significant amount invested in public equity markets. Public equity market prices are also backed by the federal government, at least on…

I think a lot of newcomers to stock investing in the past year have been given the wrong ideas about the stock market.

When all of the headlines are about GameStop and Nokia and AMC and some kid who made it lost a lot of money on RobinHood, the stock market can feel like a place for gambling. Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on.

Several times a week there are conversations on HN where commenters can’t understand how crypto currencies are different than stocks or how stocks are any different than gambling or why stocks can have any value without paying dividends.

I suspect many of those newcomers will be shaken out of the market during the next protracted drawdown. It’s unfortunate, because they stand to lose a lot over the course of a lifetime of investing.

Re: Stock Market Returns Are Anything but Average

#125

Post by AJ007 »

ed25519FUUU wrote: post #96
boringg wrote: post #87

Earlier quoted context omitted.

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.

How do you know any of that though? Nobody really does. The fancy hedge funds and the skittish retail investor are all just guessing. Buy and hold seems to be the only sane strategy.

It is like driving down the street by looking out the back window. You are confident there isn't a dump truck parked in the middle of the street, because you didn't see one in the last 3 blocks.

Re: Stock Market Returns Are Anything but Average

#126

Post by rorykoehler »

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 world has changed now though. Betting against America is essentially betting against human progress.

Re: Stock Market Returns Are Anything but Average

#127

Post by weeboid »

Isn’t it the case that for *any* arbitrary 30 year period of S&P, the worst you could do is 2x, and the best 1000x? And the mode something like 10x

For 20 years it reduces where I think some periods could actually produce flat or slightly negative, but the best and mode are still up in that range.

Hey, yeah. Investing is “risky”. Keep “working on your career”, and squirrel away into 401ks then.

Re: Stock Market Returns Are Anything but Average

#128

Post by lotsofpulp »

staticman2 wrote: post #30
nocommentguy wrote: post #17

Earlier quoted context omitted.

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?

When you need to pony up an extra $100k for a down payment and your monthly payment goes up $300 for the next 30 years because real estate prices rise, is that not impairing your ability to consume other things?

Re: Stock Market Returns Are Anything but Average

#129

Post by nend »

kingsuper20 wrote: post #104

The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turchin (cliodynamics) a peaking cycle in civic unrest, a potential loss of reserve currency status, big changes in tech that still haven't been digested, low cost of transactions. Lotsa opportunities for froth. I'm still uncomfortable with it as a store of value. N…

>You could argue that the entire market is a mania.

You could also argue that the entire market is simply a reflection of society and humanity in general. As an American, I don't really see the market we've built as any more maniacal than the society we've built. They seem to go hand in hand to me.

What defines how logical/maniacal our society is if not our social institutions?

Re: Stock Market Returns Are Anything but Average

#130

Post by duxup »

kingsuper20 wrote: post #104

The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turchin (cliodynamics) a peaking cycle in civic unrest, a potential loss of reserve currency status, big changes in tech that still haven't been digested, low cost of transactions. Lotsa opportunities for froth. I'm still uncomfortable with it as a store of value. N…

I remember the banking crisis and the money printing after that, it was absolutely assumed inflation would follow, how much was debatable, but there wasn't much debate about the impending inflation.

Didn't happen... for .

Who knows what to make of the rules these days.

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