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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

#211

Post by highfrequency »

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…

There’s a big difference between saying that a company is growing and has stellar financials, and saying that it is a great stock to invest in. Surely the current price is relevant.

Everyone can agree that Amazon is worth A Lot Of Money. The question is: is it worth $2T? or $3T? or $1T?

Re: Stock Market Returns Are Anything but Average

#212

Post by as_i_fall »

bryanlarsen wrote: post #185
as_i_fall wrote: post #98

Earlier quoted context omitted.

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.

Well obviously nothing is guaranteed, but something like 90% of 20 year windows in the last 100 years would in fact result in positive real returns.

http://archive.nytimes.com/www.nytimes.com/interactive/2011/...

Note that the light red color is actually still indicating a positive real return, this is particularly relevant in the 70s and early 80s when a 2% real return would be a much higher nominal return.

Agreed that some people expect returns for time horizons as short as 10 years though, which is clearly a mistake.

Re: Stock Market Returns Are Anything but Average

#213

Post by [deleted] »

kragen wrote: post #210

This article suffers from hindsight bias by virtue of focusing on the US stock market, for which this has been an exceptionally good century. If you were to include the markets of Britain, the Netherlands, Japan, Germany, France, Poland, China, Argentina, and Switzerland, the picture doesn't look so rosy. Anything you invested in the Giełda Pieniężna w Warszawie in 01926, for example, would have evaporated in 01939;…

[deleted]

Re: Stock Market Returns Are Anything but Average

#214

Post by boringg »

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.

That is a very astute point. I say it more as a broad model. And to the point of casino games - I speak to blackjack only which has a finite set of cards in a deck.

I would argue, broadly, that there is a finite value in the stock market we just don't know what it is (and it changes significantly) but I do agree with you that there are some very significant differences and is a potential flaw in the analogy.

Re: Stock Market Returns Are Anything but Average

#215

Post by mywittyname »

throwawaywindev wrote: post #183
duxup wrote: post #130

Earlier quoted context omitted.

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.

Housing costs is included, I'm not sure where you got the impression it wasn't. And considering you thought its exclusion was "crazy," why didn't hearing that fact prompt you to investigate?

https://www.bls.gov/cpi/questions-and-answers.htm#Question_1...

https://www.bls.gov/opub/hom/cpi/calculation.htm#estimation-...

Re: Stock Market Returns Are Anything but Average

#216

Post by boringg »

EVa5I7bHFq9mnYK wrote: post #182
ahelwer wrote: post #147

Earlier quoted context omitted.

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.

Actually there is a basis for it in blackjack and how to card count. That said I'm not sure what casino's are doing these days ever since the card counting was figured out.

Re: Stock Market Returns Are Anything but Average

#217

Post by sec400 »

kragen wrote: post #210

This article suffers from hindsight bias by virtue of focusing on the US stock market, for which this has been an exceptionally good century. If you were to include the markets of Britain, the Netherlands, Japan, Germany, France, Poland, China, Argentina, and Switzerland, the picture doesn't look so rosy. Anything you invested in the Giełda Pieniężna w Warszawie in 01926, for example, would have evaporated in 01939;…

OT: why do you prefix the year with a 0?

Re: Stock Market Returns Are Anything but Average

#218

Post by Red_Leaves_Flyy »

willcipriano wrote: post #194
Red_Leaves_Flyy wrote: post #178

Earlier quoted context omitted.

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..

Check out the ages of elected officials, most are in the "won't be alive in twenty years" camp so the lack of foresight is unsurprising.

That is part of my reasoning behind my statement. The other part is the desires and concerns of the largest demographics electing these same people.

Re: Stock Market Returns Are Anything but Average

#219

Post by tut-urut-utut »

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.

I agree that timing the market usually doesn't work. But it doesn't work in both ways. You are equally likely to miss or hit both good and bad days, with the same or similar impact on total return.

Re: Stock Market Returns Are Anything but Average

#220

Post by runako »

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…

> can be realized via dividends or the sale of the company.

Keep reading my comment. Share buybacks are another way of returning cash to shareholders.

> involving the general public in stock ownership is a new thing, it really is new ground to cover.

There have been discount brokerages for 50 years now. I guess that's "new" as compared to how long there has been money, but I don't know that it's "new" in the sense that we can't determine whether buybacks do have the effect of returning cash to shareholders (they do). Share buybacks have been allowed since 1934.

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