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Stock Market Returns Are Anything but Average

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Re: Stock Market Returns Are Anything but Average

#181

Post by Aunche »

nocommentguy wrote: post #13
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.

More like the value of the dollar has roughly halved due to record money-printing and this is reflected in capital assets firsts. https://fred.stlouisfed.org/graph/fredgraph.png?width=880&he... MMT apologists are the modern day petit bourgeois. Trust the experts!

Much of the increase was just banks relabeling their M2 money as M1. This happened when banks stopped penalizing people from withdrawing from their savings account more 6 times a month.

Re: Stock Market Returns Are Anything but Average

#182

Post by EVa5I7bHFq9mnYK »

ahelwer wrote: post #147
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.

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.

There is also no basis for such a belief in the casino games.

Re: Stock Market Returns Are Anything but Average

#183

Post by throwawaywindev »

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.

Only because housing cost usually isn’t included in the definition of inflation for some crazy reason. Housing costs are out of control.

Re: Stock Market Returns Are Anything but Average

#184

Post by ahelwer »

slv77 wrote: post #63
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…

The stock market is nothing more then a claim on a future stream of dividends over a roughly 50 year time horizon. The longer the investment horizon the greater the uncertainty and the greater the volatility. To compensate for that investors typically demand higher returns. Yields on 30 year bonds are typically higher then 10 year bonds. Long term returns on the stock market can be broken down into two categories: -…

Future-discounted series of dividends is one theory of stock market valuation. It isn't the only one. Keynesian beauty contest is another.

Re: Stock Market Returns Are Anything but Average

#185

Post by bryanlarsen »

as_i_fall wrote: post #98
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…

I don't think anyone is claiming that throwing your money into SPY for a year or even 5 will guarantee returns.

But the claim is often made that throwing it in for 10 or 20 years will guarantee returns.

Re: Stock Market Returns Are Anything but Average

#186

Post by YZF »

mortehu wrote: post #161
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.

The question is whether the current P/E impacts (long term) future returns. I think it does. Robert Shiller thinks it does (or at least the cyclically adjusted P/E).

Having a data point per month is not unreasonable. Prices and earnings move. The 20 year period for a 10 year return horizon is clearly too short. I'd like to see the same data over longer periods.

Re: Stock Market Returns Are Anything but Average

#187

Post by ryandrake »

PragmaticPulp wrote: post #124
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…

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…

> 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.

This distinction is practically useless, unless you own enough shares to have even tiny sway at shareholder meetings. Owning 1/1000000000th of a company doesn't mean any extra value or power to you. The big difference between crypto coins and stock is that (some) stocks pay dividends. The ones that don't pay dividends are just speculative ticker symbols that go up and down in value--no difference from crypto names that go up and down.

Re: Stock Market Returns Are Anything but Average

#188

Post by WalterBright »

kingsuper20 wrote: post #163
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…

> 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 cove…

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

Combining Biden's capital gains tax, Federal estate tax, Biden's stepped up basis for estates, Washington state's estate tax, and Washington state's new capital gains tax, the top estate tax rate is now 70%.

This ensures that tax planning will dominate investment strategies, which usually results in suboptimal investing and subsequently a lower performing economy.

Re: Stock Market Returns Are Anything but Average

#189

Post by aoeusnth1 »

kingsuper20 wrote: post #163
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…

> 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 cove…

Or can be realized in a share buyback program, which are massive. Dividends and buybacks are just slightly differently structured ways to return profit to investors.

Re: Stock Market Returns Are Anything but Average

#190

Post by BurningFrog »

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.

Some say that inflation did happen, but it ended up in real estate prices, which aren't counted in the formal inflation definition.

I'm not smart enough to tell how true that is.

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