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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

#401

Post by stouset »

nightski wrote: post #304
baby wrote: post #273

Earlier quoted context omitted.

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…

“Buying the dip” sounds brilliant in theory but it fundamentally requires holding on to cash outside of the market waiting for that dip to happen. An order of magnitude more gains have been lost waiting for dips that never come than have been made holding onto cash waiting for those dips.

I have a friend who sold it all in 2017 expecting the crash to come any day now. He’s still holding on to cash waiting for that dip. I’m sure in early 2020 he felt prescient and that this gamble would pay off. Only it didn’t, and he likely missed the one opportunity he had to minimize those lost gains. Not only does buying the dip require correctly guessing the bottom, but by definition you have to have the constitution to put it all in at the peak of bad market news.

Re: Stock Market Returns Are Anything but Average

#402

Post by x3sphere »

nO0b wrote: post #363
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…

> This is the strategy myself and many of my college friends took when we graduated in the late 80's. And we're all pretty comfy right now. I wonder if your Japanese peers in a Nikkei 225 fund over the same time period would agree with your strategy. Buy-and-hold for them is still down 50% over the last few decades.

Lot of people bring up the Nikkei but averaging in money in was still better than holding cash over a long enough time period. I highly doubt anyone bought at the peak and then never bought again afterwards.

Re: Stock Market Returns Are Anything but Average

#403

Post by LiveTheDream »

sec400 wrote: post #217
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?

The 5-place date is meant to draw attention to a longer view of time, a position advocated for by the Long Now Foundation.[0]

[0] https://blog.longnow.org/02013/12/31/long-now-years-five-dig...

Re: Stock Market Returns Are Anything but Average

#404

Post by splithalf »

sokoloff wrote: post #360
splithalf wrote: post #289

Earlier quoted context omitted.

It’s such a fundamental contradiction you see it everywhere. The quote “buy low, sell high” says we should time the market. Even the classic “percentage of bonds to stocks should be your age” requires us to time the market. And if you just buy stock when you happen to have spare cash, that too is “timing the market.”

I would argue that the percentage of bonds should be your age is not timing the market in any meaningful sense of that phrase. (I also think that's too conservative an asset-allocation, but in any case "make a periodic rebalancing trade according to this preset formula" is the opposite of "time the market".)

I would argue that the distinction between periodic rebalancing and timing the market is subjective. Even if you aren’t trying to rebalance based on market conditions, ie selling at a high, the downsides of market timing are still there just the same. Just because you don’t care about the timing of your trades doesn’t mean the timing doesn’t matter.

Re: Stock Market Returns Are Anything but Average

#405

Post by cryptica »

SilurianWenlock wrote: post #302
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

The narrative about automation is used to justify Big Tech monopolies. I.e. there are huge tech monopolies nowadays because big tech is automating everything and driving all local brick-and-mortar shops out of business and people are going out of work because of automation.

The narrative about big data is used to justify Big Tech's (e.g. Facebook) high profits. I.e. Advertising wasn't lucrative before but now thanks to big data (targeted advertising), it's very lucrative.

What if an alternative explanation to the first narrative is not that Big Tech is automating everything, but instead, that their monopolies are simply a result of them having preferential access to large amounts of newly created capital (e.g. at lower interest rates or via shell company revenue laundering schemes); their access to the money printers creates an asymmetric playing field which allows them to beat all the competition in spite of their inefficiencies.

What if an alternative explanation to the second narrative is that the real reason why advertising has become so profitable is not because of Big Data, but simply because businesses are desperate to protect their wealth from inflation and for lack of a better alternative, they decide that consumer mindshare is the most valuable asset... So companies which monopolize consumer attention/mindshare (social media companies) end up flooded with money from all sectors of the economy.

If most of the Big Tech growth we've seen is artificial, then what will happen to inflation when large numbers of investors start selling shares and spending their money to buy real productive businesses instead (I.e. if they all give up on the false automation and big data narratives)?

Re: Stock Market Returns Are Anything but Average

#406

Post by aerosmile »

qeternity wrote: post #361
aerosmile wrote: post #354

A really interesting thing happened in March 2020. The market crashed and we all remember how gloomy everything looked. Needless to say, some businesses were going to be directly affected by Covid (eg: travel, hospitality) and their stocks went down as much as 80%. But it also became clear that many stocks were just collateral damage (eg: most of the tech stocks), and that they were going to recover more quickly than…

This has nothing to do with your company thesis and everything to do with the Fed.

I get the gist of your response and it certainly has some merit. But I would push back on the black or white presentation of your point - stock allocations certainly do matter, as you can easily confirm by playing with a few what-if scenarios in the past 12 months.

The high-level point of my parent comment was to not run away from market crashes, and instead to buy stocks that are a part of the collateral damage as opposed to those that are directly connected to the root cause of the sell-off. I think this strategy will work regardless of Fed's actions, within reason (eg: the financial system doesn't collapse altogether).

Re: Stock Market Returns Are Anything but Average

#407

Post by sokoloff »

splithalf wrote: post #404
sokoloff wrote: post #360

Earlier quoted context omitted.

I would argue that the percentage of bonds should be your age is not timing the market in any meaningful sense of that phrase. (I also think that's too conservative an asset-allocation, but in any case "make a periodic rebalancing trade according to this preset formula" is the opposite of "time the market".)

I would argue that the distinction between periodic rebalancing and timing the market is subjective. Even if you aren’t trying to rebalance based on market conditions, ie selling at a high, the downsides of market timing are still there just the same. Just because you don’t care about the timing of your trades doesn’t mean the timing doesn’t matter.

By that logic, the initial investment timing matters as well, which is technically true of course but practically not particularly useful. If you want exposure to equities, you have to buy equities at some time.

Re: Stock Market Returns Are Anything but Average

#408

Post by omegaworks »

imtringued wrote: post #378
thoughtstheseus wrote: post #167

Earlier quoted context omitted.

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.

This is an argument in favor of pushing up inflation as soon as possible. Ideally inflation should be 2% and interest rates should be between 3-4% and it should stay that way forever. If there is a discrepancy from that ideal then it means that something is going wrong, and the longer that discrepancy lasts, the more things are going wrong. Those wrong things will be discovered as soon as interest rates are back to t…

Why those magic numbers?

Re: Stock Market Returns Are Anything but Average

#409

Post by zzzzzzzza »

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…

it's funny you think crypto is a hedge when it is highly correlated with sp500. doesn't bitcoin have a beta of like 2 or something?

If anything I would view it as a leveraged bet on the broader market.

Re: Stock Market Returns Are Anything but Average

#410

Post by lmilcin »

tut-urut-utut wrote: post #32
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).…

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?

Except it is much easier to participate in best days than avoid worst ones.

Participating in best days requires you to just have your money invested all the time.

If you know how to avoid worst ones, let me know. We are managing risk for one of the biggest banks in the world and would like to buy this intel for a bunch of billions of dollars.

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