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Stock Market Returns Are Anything but Average

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Re: Stock Market Returns Are Anything but Average

#161

Post by mortehu »

YZF wrote: post #157

Rather than looking at returns in isolation it might be more interesting to look at returns vs. P/E or vs. some other parameters like interest rates. e.g.: https://www.alger.com/AlgerDocuments/AOM_singleGreatestPredi... This is only a 20 year period which is pretty short, but hey, doesn't look as random any more.

Each data point covers 10 years, and there's only 20 years of data. There should be only two points on the graph. The other points are just blends of the two independent time periods.

The implied decision is whether to invest over the next ten years, and the chart implies that you can make this decision every month.

Re: Stock Market Returns Are Anything but Average

#162

Post by seanmcdirmid »

runako wrote: post #149
kingsuper20 wrote: post #123

Earlier quoted context omitted.

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 earni…

Where does Amazon get all of the stock for employee compensation? Do they just have a large pool of outstanding stock in reserve?

Re: Stock Market Returns Are Anything but Average

#163

Post by kingsuper20 »

runako wrote: post #149
kingsuper20 wrote: post #123

Earlier quoted context omitted.

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 earni…

> It's purchasing an ownership claim on future earnings realized by the company.

Which, as I said, can be realized via dividends or the sale of the company.

I looked up their dividend returns. It ain't much.

Keep in mind that tax law highly incentivizes the avoidance of dividends.

We'll see (or maybe not). This business of involving the general public in stock ownership is a new thing, it really is new ground to cover.

Re: Stock Market Returns Are Anything but Average

#164

Post by rorykoehler »

bryanlarsen wrote: post #38
ahelwer wrote: post #25

Earlier quoted context omitted.

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?

As long as you realize that you're choosing the least bad of a bunch of bad options. Far too many people are claiming that stocks are safe. You're right: stock picking, index funds, bonds, crypto, cash, real estate, collectibles -- they're all bad options in 2021. Myself I would recommend holding a sizable portion in cash. Unlike many, I'm not overly worried about cash holdings getting destroyed by inflation, but I d…

Cash is being decimated by asset inflation before our very eyes.

Re: Stock Market Returns Are Anything but Average

#165

Post by mikem170 »

heliodor wrote: post #72
berkes wrote: post #65

Earlier quoted context omitted.

This warrants some disclaimers. We might very well be in a housing-bubble. So put your money only in there if you can miss it and if it is safe for you. And always consider spreading your money. E.g. consider paying off mortgage, which could be seen as a safe version of "investing in real estate". As well as putting aside some cash, and buying in on some ETFs.

I should have mentioned that I was thinking of a long term scenario. 20-30 years. The covid real estate market is... interesting.

Could be demographics driving the housing demand, also. The large millennial generation are now in the housing market, and the baby boomers haven't sold yet. In 20-30 years the baby boomers will not be around. That will change the demand for housing. Could be quite a difference.

Re: Stock Market Returns Are Anything but Average

#166

Post by Raidion »

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.

Could you define what metrics you would use to see if the market is "hot" or "cold"? Could you let us know what each of those metrics would change in terms of contributions?

It's easy to say "hot and cold", but those things aren't easily definable, but it would be easy enough to backtest any theory you have. I'm pretty skeptical it's going to be valuable without getting into PhD level math coupled with an experts understanding of global politics and trade.

Re: Stock Market Returns Are Anything but Average

#167

Post by thoughtstheseus »

Red_Leaves_Flyy wrote: post #151
PragmaticPulp wrote: post #124

Earlier quoted context omitted.

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 owners…

> the next protracted drawdown We should have seen this drawdown last year.

The longer the bubble builds the bigger the bust. We’ve chosen growth over stability, fundamentals, and robustness. Once the U.S. struggles to stimulate its economy through deficit spending it’ll hit a wall. It’ll be fine for people but there will be a massive dislocation in the economy.

Re: Stock Market Returns Are Anything but Average

#168

Post by snikeris »

boringg wrote: post #84

I'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)

This is well captured in this guy's drawdown charts:

https://portfoliocharts.com/portfolio/drawdowns/

Re: Stock Market Returns Are Anything but Average

#169

Post by ahi »

JohnPrine wrote: post #142
kingsuper20 wrote: post #123

Earlier quoted context omitted.

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 esta…

CocaCola currently has a P/E of 32

Re: Stock Market Returns Are Anything but Average

#170

Post by ericmay »

tut-urut-utut wrote: post #32
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).…

And if you avoided the worst 10 days, your earnings double. If you avoided 20 worst days, your earning doubled again. What is the point of such trivia? That most of the profit or loss happens during the days of high volatility?

> What is the point of such trivia? That most of the profit or loss happens during the days of high volatility?

Simply that you shouldn't try and time the market, but continue to "buy and hold". The likelihood of picking these exact 10 or 20 days is near 0, so it's an irrational thing to do.

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