Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Stock Market Returns Are Anything but Average

awealthofcommonsense.com

Post reply on HN
Print view View original

171–180 of 433 posts

Re: Stock Market Returns Are Anything but Average

#171

Post by RobertoG »

duxup wrote: post #155
RobertoG wrote: post #146

Earlier quoted context omitted.

>"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

I feel like saying it won't be 'uncontrollable' isn't the same as calling that there won't be inflation and getting the reason right.

I think you feel that way because you can't appreciate the argument from only a small quote. They get it right.

The reason QE was (is) not inflationary is because that money it's not being spent in the economy, it's only adding bank reserves. Bank reserves make the interest rate go lower, but, it will not go lower than zero, after that you can create all the reserves you want.

Lower interest rates make credit more cheaper, but cheaper credit doesn't influence the economy if nobody is borrowing.

Also, bank lending is not constrained by reserves. Lowering the interest rate will make borrowing more attractive for borrowers, but that doesn't make easier for banks to lend, because they are not constrained by reserves. They are constrained by the number of borrowers to whom makes business sense to lend.

So, the quantity theory of money is wrong and the fractional reserves model is a fallacy. That should be obvious by now. The Modern Monetary Theory guys were saying that, way before 2008.

Re: Stock Market Returns Are Anything but Average

#172

Post by staticman2 »

roenxi wrote: post #158
staticman2 wrote: post #30

Earlier quoted context omitted.

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?

There has been a big leap in technology over my lifetime. "Not impaired" isn't the target, if all the wealth gains weren't being directed to asset owners by asset price inflation then the people who were working to create them would be getting a bigger share. I've done the obvious thing and bought assets, but it keeps getting harder and at some point maybe all the people who are working hard might notice that they ar…

65.8 percent of americans own a home according to an internet search. (An asset). If you want to discuss wealth inequality, I don't think a term like "asset inflation" is necessarily the right way to go about it. Can't we just use terms like home affordability?

I just think reinventing the term inflation encourages sloppy fringe conspiracy thinking.

It's my understanding if the government didn't intervene in markets we'd get events like the great depression returning periodically, which probably are in nobody's interest.

We should really be discussing the right government policies or the wrong one, but I doubt the answer to the problems of our time is zero policy.

Re: Stock Market Returns Are Anything but Average

#173

Post by lotsofpulp »

staticman2 wrote: post #154
lotsofpulp wrote: post #128

Earlier quoted context omitted.

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?

It stinks that housing prices have gone up, but fortunately you can rent instead, which is accounted for in CPI measures of inflation. I would think we could discuss the affordabity or unaffordability of homeownership without making up terms like "asset inflation" and falling into alternative fact rabbit holes about the collapse of U.S. currency.

Renting is not owning, and I question the utility of CPI’s method of measuring it that way.

My contention is increased real estate prices are affecting people’s lives in various ways, such as delaying families, not having families, moving people away from their networks, and at least allowing for a smaller portion of spending on other things in life due to a larger portion going into real estate.

Personally, I would label this asset inflation, but I don't know about the whole currency collapse thing.

Re: Stock Market Returns Are Anything but Average

#174

Post by ricardobeat »

mumblemumble wrote: post #156
ricardobeat wrote: post #150

Earlier quoted context omitted.

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 see…

Yes, that's all true, but none of it changes the point that it's a poorly constructed visualization that is ill-suited to how the author is trying to frame their story. Edward Tufte would weep.

The first graph establishes that there is no clear trend or clustering in the data points. The second one lets you visualize just how many years are around the 10% average or not, and then the argument is expanded from there.

They seem to serve their purpose pretty well. There's probably a nicer way to display that, and maybe combine them as one of Tufte's principles would suggest, but I don't see anything that would make him weep here :) What do you have in mind?

Re: Stock Market Returns Are Anything but Average

#175

Post by boringg »

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…

Kind of wish they re-ran the code to bring in the 2010s-2020s! Really appreciate that visual - my code is just from 70s until now .. I should build it as a heat map like this one.

Re: Stock Market Returns Are Anything but Average

#176

Post by mertd »

grumpwagon wrote: post #82
tut-urut-utut wrote: post #32

Earlier quoted context omitted.

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?

The point of the trivia is arguing against trying to time the market. Lots of people predict crashes are coming, so shift money from equities to cash or bonds. Unless you can time it perfectly (you can't), it is better to hold because you don't know when the best or worst days are.

But the analysis assumes you timed the market "perfectly" and sat out only on the 10 best days.

Re: Stock Market Returns Are Anything but Average

#177

Post by kingsuper20 »

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…

Personally, I'm not smart enough to pick individual stocks.

At some point (perhaps now) Amazon growth is predicated on cannibalizing other companies. After all, the broad market can't exceed the GDP generally for the long term.

My primary point here is not to argue about investment concepts, merely to state a concern about the artificiality of it all. Financialization is real and rather spooky.

Re: Stock Market Returns Are Anything but Average

#178

Post by Red_Leaves_Flyy »

thoughtstheseus wrote: post #167
Red_Leaves_Flyy wrote: post #151

Earlier quoted context omitted.

> 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.

I understand this. I'd much rather deal with the bad decisions of yesterday today than tomorrow. I guess for people that won't be alive in twenty years this is immaterial..

Re: Stock Market Returns Are Anything but Average

#179

Post by drewmate »

seanmcdirmid wrote: post #162
runako wrote: post #149

Earlier quoted context omitted.

> 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?

I'm not sure about Amazon in particular, but generally companies (especially tech companies) hold some percentage of stock in reserve for employee compensation. However, the company can also buy back stock on the open market either to take it out of circulation (and thus increase the value of outstanding shares) or use it for employee compensation. Finally, if the board (as a proxy for individual owners) permits it, a company can issue new shares for any purpose including selling to raise cash for operations, or giving to employees as compensation. This isn't free money, however. New shares tend to dilute the value of existing shares. So owners often prefer to raise money other ways, like debt that doesn't convert to an ownership claim in the way stock does.

Re: Stock Market Returns Are Anything but Average

#180

Post by BurningFrog »

seanmcdirmid wrote: post #162
runako wrote: post #149

Earlier quoted context omitted.

> 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?

I don't know Amazon's specifics, but I believe that's how it's typically done.

It doesn't have to be that large a pool as percentage of the company.

Post reply on HN