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Stock Market Returns Are Anything but Average

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Re: Stock Market Returns Are Anything but Average

#301

Post by SavantIdiot »

SCUSKU wrote: post #293
johnwheeler wrote: post #286

Earlier quoted context omitted.

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...

Methinks 'johnwheeler' is full of it and probably just discovered reddit, WSB, and stonks

Re: Stock Market Returns Are Anything but Average

#302

Post by SilurianWenlock »

cryptica wrote: post #283

The stock market has more or less monopolized the global fiat monetary system. Politicians can decide what the returns will be in any given year because they control the currency. The returns are only meaningful in the short term while everyone is in a trance thinking that fiat currency is worth the same as it was before... The longer everyone can stay in this trance, the more 'real' the numbers are. However, it's my…

I cannot understand the thinking behind your 2nd and 3rd from last paragraphs

Re: Stock Market Returns Are Anything but Average

#303

Post by kevincrane »

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.

Same for the lottery, if you just know which numbers are good then you only have to buy one or two tickets ever and you're set for life.

Re: Stock Market Returns Are Anything but Average

#304

Post by nightski »

baby wrote: post #273
grumpwagon wrote: post #82

Earlier quoted context omitted.

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 can attest. Beginning of covid: stocks are crashing, going down 10% every day, I read the paper from that uni in London that says we are going to be alternating light and heavy lockdowns for the next 12-18months. More than a year of lockdown? How can the economy survive this? I’m like: sell, sell, sell. Right when I sold the market went up like crazy and has more than recovered now.

Right and you probably do not follow the market very closely. Which is fine, that is most people. If you start watching it closely though (and I mean over several months to years) there are many patterns that emerge. I knew a lot of people that bought the dip last year. They weren't worried about how long it would take the economy to recover, or if it would go down further because they knew things were VERY cheap and it would eventually come up unless there was a global economic collapse at which point it wouldn't matter anyways.

Most I knew dollar cost averaged down. It paid off very well.

Re: Stock Market Returns Are Anything but Average

#305

Post by woobar »

jerf wrote: post #137
CarelessExpert wrote: post #114

Earlier quoted context omitted.

Great visual! So I'll just note a few things: 1) You can clearly see the Great Depression and 2008 in here, so I'm just going to ignore those. 2) The other really nasty period for market returns was during the 70s oil crisis and subsequent high inflation period. It also notably marks areas "slightly above inflation" as red, which are not periods where loses would occur (though, yes, the gains would be basically flat)…

I will also agree that if you just erase all the risk from the market due to the downturns, that the market becomes a great investment. But what's the relevance of that? When the next bubble pops, whether it be in two weeks, two years, or a decade, you and your investments are going to experience it. Some of those red splotches go on for twenty years . As for why doing "just barely better than inflation" is marked as…

> Putting $1 dollar in the market to get $1.04 back out 30 years later is not a positive investement.

This is not how annual returns work. If you put a $1 an average return was 4%, you will get $3.25. And if you put it in a tax deferred account or did not withdraw a lump sum after 30 years, the effect of taxes would be less dramatic.

What other investment performed better over the long time? For instance, housing did not grow much until 30 years ago.[1]

[1] https://dqydj.com/historical-home-prices/

Re: Stock Market Returns Are Anything but Average

#306

Post by YZF »

mortehu wrote: post #292
YZF wrote: post #186

Earlier quoted context omitted.

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.

If month 1 was the crash then 0 to 12 and 1 to 13 look very different. No?

Aren't you basically saying your precise entry point to a 10 year period doesn't matter, e.g. if you enter at year zero or year 2, or January vs May in year zero? But clearly it matters a lot because the market can make huge moves in short periods.

In other words, you're saying to look at 10 year returns we should just take each decade on its own with no overlap? Clearly if I pick 1970-1980, 1980-1990, 1990-2000, or pick 1975-1985, 1985-1995, 1995-2005 I'm gonna end up with very very different results? And sure, at some point the overlap becomes too fine. But saying that 2 decades is just 2 data points doesn't sound right either?

I definitely would like to see an analysis over a much longer horizon, that'd be a more significant result.

EDIT: Totally agree the points are not independent. But it feels like there's still residual value (which I can't quite put in mathematical terms) from this "moving window".

Re: Stock Market Returns Are Anything but Average

#307

Post by kqr »

dcow wrote: post #237
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 problem is options/derivatives trading. That is straight up gambling. There’s a meta market where you bet on the behavior of the market...

While that is a large part of it, it also seems like an unfair simplification, for two reasons:

1. You can construct portfolios of derivatives that are almost equivalent to holding the underlying except at a smaller initial cost. This gives you nothing but flexibility in ownership.

2. Remember that fire insurance is also straight up gambling that your house will burn down. Gambling counter to your interests is what we call insurance, and the proper mix of underlying and derivative is a hedged, lower risk portfolio than just the underlying.

Re: Stock Market Returns Are Anything but Average

#308

Post by kqr »

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.

As long as people are still unemployed there should be no reason for the US with its sovereign currency to struggle stimulating the economy.

Even if you guys would overshoot full employment your current president doesn't seem too frightened by the idea of taxing coins out of existence again.

Re: Stock Market Returns Are Anything but Average

#309

Post by intergalplan »

tonyedgecombe wrote: post #295
intergalplan wrote: post #234

Earlier quoted context omitted.

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?

This reads to me like "is it really inflation if money just got cheaper?" Which... I think the answer is "yes, that's exactly what it is"?

Re: Stock Market Returns Are Anything but Average

#310

Post by [deleted] »

tonyedgecombe wrote: post #295
intergalplan wrote: post #234

Earlier quoted context omitted.

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?

[deleted]
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