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Stock Market Returns Are Anything but Average

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Re: Stock Market Returns Are Anything but Average

#291

Post by kqr »

bko wrote: post #227
hobs wrote: post #195

Earlier quoted context omitted.

There's a large difference, one of those is based on a pyramid scheme with no inherent value, and one is based on a company delivering value to customers. With the state of the stock market companies can and do go under, but generally those doing something for people dont magically disappear overnight (like any crypto certainly can.) That's it; that's the difference.

> There's a large difference, one of those is based on a pyramid scheme with no inherent value, and one is based on a company delivering value to customers. Crypto is mostly a store of wealth, similar to a currency. It's inherit value is that it is fungible, transferrable and scarce. Unlike other currencies, the supply is not at the whims of fed officials and politicians. The difference is that you can't pay taxes di…

Currencies are not based on nothing. They're based on taxation. As long as a huge group of people need a currency to stay out of jail, that currency has value. (And pretty much all currencies in history have had their value imbued in them by threat of violence.)

Re: Stock Market Returns Are Anything but Average

#292

Post by mortehu »

YZF wrote: post #186
mortehu wrote: post #161

Earlier quoted context omitted.

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.

Prices move, but the move from month 0 to month 12 is highly dependent on the move from month 1 to month 13. It's statistical nonsense to treat them as independent variables in a regression model. You could use any biased random walk as your price series with this approach and get a correlation p value of 0.00001.

Re: Stock Market Returns Are Anything but Average

#293

Post by SCUSKU »

johnwheeler wrote: post #286
SavantIdiot wrote: post #263

Earlier quoted context omitted.

How do you "miss" 10 days? Unless you are a day trader (aka gambler), "normal person investing" is about trickling cash into an account slowly over time into low-cost funds/etfs, covering the grid, and pretty much never selling until retirement. Maybe a rebalance here or there over the decades, but you're never "out" unless you're paranoid and liquidate into a cash position, but refer to point A. This is the strategy…

I agree with this except I think if you know a stock or two is good, diversification is unnecessary. I’ve only had two stocks in my portfolio for the last ten years.

I am happy for you that your 2 picks have been good. But most likely you have been lucky (maybe you picked AMZN, TSLA). Modern portfolio theory states that diversification gets you closer to better returns on average with lower risk. [1]

https://en.wikipedia.org/wiki/Modern_portfolio_theory#Divers...

Re: Stock Market Returns Are Anything but Average

#294

Post by confidantlake »

skystarman wrote: post #205
kingsuper20 wrote: post #177

Earlier quoted context omitted.

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.

The thing is there's a FRACTION of a percentage of people who are "good at picking stocks". Most PROFESSIONAL stock pickers don't beat the market. And those that do, a tiny fraction can do it consistently over a 5-10 year time frame. This is backed up by decades of data. But we still have millions of people who apparently think they are smarter than the thousands of professional stock-pickers who have MAs, PhDs and y…

Exactly. Just like if you get 1000 people in a room, odds are one of them will get a coin toss right 10 times in a row. Doesn't mean that guy is good at predicting coin tosses.

Re: Stock Market Returns Are Anything but Average

#295

Post by tonyedgecombe »

intergalplan wrote: post #234
BurningFrog wrote: post #190

Earlier quoted context omitted.

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.

Yeah, I don't know how someone can look at housing prices say, 1990-2020 and say there wasn't inflation after the housing crisis. House prices dropped, but not as much as they "should" have to eradicate the evident bubble of '00-'08, despite the very public beating housing & banking took. And 2-3 years on they were shooting up again!

Is it really inflation if the cost of a house doubles but the cost of servicing a mortgage halves because interest rates are so low?

Re: Stock Market Returns Are Anything but Average

#296

Post by kgwgk »

nostrademons wrote: post #275
ISL wrote: post #233

Earlier quoted context omitted.

As recently as 2011, KO had a P/E of 9. https://www.macrotrends.net/stocks/charts/KO/cocacola/pe-rat... There are two ways that a P/E can return to a quasi-normal value. Either the price can go down or the earnings can increase. The mean and median values, since 1880, are about 15. "This time, it's different" https://www.multpl.com/s-p-500-pe-ratio

So if earnings increase 3x the P/E goes back down to ~10. KO has excellent margins - last time I looked they were around 60%. That means prices * sales only has to increase by 5x to bump earnings up 3x. Food prices have been inflating at 10-15% recently; 15% inflation over 11 years will get you there, and that doesn't include any growth in sales at all. These aren't unreasonable assumptions, given the macro environme…

> margins - last time I looked they were around 60%. That means prices * sales only has to increase by 5x to bump earnings up 3x.

I am not sure about the logic (are you assuming marging expansion?) but probably you are trying to say something else than revenue has to increse "only" five-fold for earnings to triple.

> Food prices have been inflating at 10-15% recently;

Sure.

Re: Stock Market Returns Are Anything but Average

#297

Post by kccqzy »

sichtlinkair wrote: post #15
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).…

> It's likely to be a "picking up pennies in front of a steamroller" type trade. What does that mean?

Your trades have a near-zero (probably positive) mean but very negative skewness.

Re: Stock Market Returns Are Anything but Average

#298

Post by kapp_in_life »

DennisP wrote: post #250
whynotminot wrote: post #51

Earlier quoted context omitted.

Do you think the globe as a whole will outperform the US market? I don't think our collective future as a planet is any better than the US outlook, personally. If anything, the United States is probably better situated to win future dystopian contests than most, too.

Do you just buy stock X because you think it will do well, or do you buy a broad ETF because you believe in passive investing and diversification? If the latter, well, the same applies to countries and asset classes. You can take your best guess on who the winners will be, or you can just buy the market. It doesn't mean you think "the globe will outperform the US," any more than buying VTSAX means you think VTSAX wil…

And it also bears mentioning that if you're buying a market cap weighted fund then you aren't really missing out too much on US equity dominance, since for example VTWAX holds ~60% US stocks.

Re: Stock Market Returns Are Anything but Average

#299

Post by as_i_fall »

bryanlarsen wrote: post #240
as_i_fall wrote: post #212

Earlier quoted context omitted.

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 t…

The last 100 years is only a weak predictor of the future.

If you find a stronger one I'll be all ears

Re: Stock Market Returns Are Anything but Average

#300

Post by kccqzy »

b0afc375b5 wrote: post #16
sichtlinkair wrote: post #15

Earlier quoted context omitted.

> It's likely to be a "picking up pennies in front of a steamroller" type trade. What does that mean?

I think it means doing something high risk for low reward.

It means doing something high risk but the risk has low probability, and for low reward.

No rational mind would do anything high risk low reward, unless the risk has low probability. Then it's just like selling insurance.

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