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Stock Market Returns Are Anything but Average

awealthofcommonsense.com

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Re: Stock Market Returns Are Anything but Average

#141

Post by pc86 »

weeboid wrote: post #131
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.

When S&P plunges more than 10%, buybuybuy. 30%? Shit go full margin and back up the truck. I’m sitting on 2x since Dec. Protips. Saas is the thesis. Long term solar is a 100x-1000x easy-ish bet. Capture is “good enough”, we are going to solve storage. Transmission will significantly collapse into storage. Game will change. The entire energy game.

> Long term solar is a 100x-1000x easy-ish bet.

This is WSB-level nonsense.

Re: Stock Market Returns Are Anything but Average

#142

Post by JohnPrine »

kingsuper20 wrote: post #123
lotsofpulp wrote: post #110

Earlier quoted context omitted.

> 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…

Just because a company isn't distributing dividends doesn't mean you're only buying a story. AMZN still has lots of room to grow. If I'm an investor in AMZN I would much rather them reinvest profits into a data center that will produce even more future profits than distribute the money to me. Once these growth companies top out in terms of their market share they'll pivot to distributing dividends, same as large established companies like Coca Cola

Re: Stock Market Returns Are Anything but Average

#143

Post by partiallypro »

berkes wrote: post #27
Someone1234 wrote: post #8

Earlier 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".

The saying is that "As Long as the Music Is Playing, You've Got to Get Up and Dance." You can't -not- invest because it doesn't make sense and the valuations are insane because you could miss the dance or the encore.

Re: Stock Market Returns Are Anything but Average

#144

Post by beckingz »

bob1029 wrote: post #121
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 yo…

Reminds me of the nose and bean principle from consulting: https://archive.uie.com/brainsparks/2011/07/08/beans-and-nos...

Re: Stock Market Returns Are Anything but Average

#145

Post by pushrax »

jerf wrote: post #137
CarelessExpert wrote: post #114

Earlier quoted context omitted.

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)…

I will also agree that if you just erase all the risk from the market due to the downturns, that the market becomes a great investment. But what's the relevance of that? When the next bubble pops, whether it be in two weeks, two years, or a decade, you and your investments are going to experience it. Some of those red splotches go on for twenty years . As for why doing "just barely better than inflation" is marked as…

The problem is that there's not a clearly viable alternative. Even if we're in a period where the market is going to underperform (likely), will it still underperform cash? Bond yields are so low that they're a questionable inflation hedge as well.

Re: Stock Market Returns Are Anything but Average

#146

Post by RobertoG »

duxup wrote: post #130
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.

>"Didn't happen... for ."

That's not exactly true, MMT was right about that beforehand, this is from 2009:

"There are also those that claim that quantitative easing will expose the economy to uncontrollable inflation. This is just harking back to the old and flawed Monetarist doctrine based on the so-called Quantity Theory of Money. "

From: http://bilbo.economicoutlook.net/blog/?p=661

Re: Stock Market Returns Are Anything but Average

#147

Post by ahelwer »

boringg wrote: post #87
ahelwer wrote: post #6

There 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.

You are making the classic mistake of confusing domains exhibiting a normal distribution of outcomes (casino games) with domains exhibiting an exponential distribution of outcomes (the market). This is the sort of thinking that traps people into believing "it went up a lot, therefore it has to revert to the mean and go down" or vice versa - there is no basis for such a belief in exponential domains.

Re: Stock Market Returns Are Anything but Average

#148

Post by JohnPrine »

ycombinete wrote: post #85
xur17 wrote: post #35

Earlier quoted context omitted.

I might agree that general stock market prices are quite high, but arguing that "they went up 15% in 6 months" doesn't seem particularly strong. That has occurred historically, and doesn't automatically mean it's overpriced.

I’m quite new to it, so that’s reassuring to hear. September was when I made my first purchase.

just forget about it and never take the money out

Re: Stock Market Returns Are Anything but Average

#149

Post by runako »

kingsuper20 wrote: post #123
lotsofpulp wrote: post #110

Earlier quoted context omitted.

> 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…

> When you essentially lend money to GOOGL or AMZN, what are you actually getting back besides a story

Buying a stock is not lending money to a company. It's purchasing an ownership claim on future earnings realized by the company.

For AMZN, the expectation of its investors is that it should not realize substantial (relative to revenue) earnings now so that it can grow further and thereby increase the long-tail earnings to which shareholders are entitled.

GOOG, on the other hand, is returning money to shareholders now. In fact, they just authorized a program to return another $50B to shareholders. Our tax regime skews payout preferences, so that instead of paying dividends, some companies opt for share buybacks. But the net result is that cash is transferred from the company to its shareholders. You can see GOOGL's buybacks over time here, looks like they returned ~$31 billion to shareholders in 2020: https://ycharts.com/companies/GOOG/stock_buyback .

Re: Stock Market Returns Are Anything but Average

#150

Post by ricardobeat »

mumblemumble wrote: post #18

For that 2nd graph, he chose buckets that are uniquely poorly suited to evaluating his statement about whether returns tend toward 10%. It looks to me like, if he had instead made them (5%)-5%, 5%-15%, 15%-25%, etc., then the mode would indeed have been the 5-15% bracket.

The mode is already in the 10-20% bucket in the graph, changing the buckets would not affect the argument that follows, which does mention the 8-12% and 10-15% ranges:

> If we look at the calendar year returns plus or minus 2% from the 10% average (so 8% to 12%) this has happened in just 5 calendar years

> Just 18% of returns have been between 5% to 15% in any given year.

The main point being that the odds of you seeing any returns near the 10% number are quite low (18/100). It's just a lot more spiky than most people realize and not a safe way to get 10% returns unless you're looking at 30+ year periods.

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