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Stock market charts you never saw (2021)

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Re: Stock market charts you never saw (2021)

#21

Post by onlyrealcuzzo »

recuter wrote: post #10

If I was alive in 1923 and stashed away $8 million in ̶c̶a̶s̶h̶ (Edit: 100y bonds) would only be worth about $140 million today. Had I put it into some fancy ETF (Recall Vanguard dates back only to 1975, but whatever) I'd be a billionaire. That's it, that is the entire difference of less than an order of magnitude. Don't reckon the nickels and the dimes matter much to centenarians. Most people don't even have $8000 t…

> If I was alive in 1923 and stashed away $8 million in cash it would only be worth about $140 million today.

Stashed it away as cash where? If you had $8M in 1923 and kept it under a mattress, it would still be $8M today - the difference is due to inflation - in 1923 you would've been the equivalent of a Billionaire today - and today... you'd have $8M.

I think things like this matter a lot.

If you invested in treasuries or only had a savings account with interest - you're going to get eaten alive by inflation, and over a long period of time - your wealth will decrease enormously - maybe as much as 50%+ (with a savings account).

If you instead had invested in the S&P - and it did what it did over the last 100 years - you'd have 2-3x what you started with in real terms.

Although, past performance != future performance. No one knows what the future will hold. Maybe the US won't even be around. Maybe we'll move to socialism. Maybe private companies get overrun with crooks and everyone loses most of their money because the whole S&P goes Enron/Wirecard. Who knows!

But my guess is I'll be better off with equities than cash medium & long term. And fortunately, I'm not too concerned about short-term.

Re: Stock market charts you never saw (2021)

#22

Post by fsckboy »

lkbm wrote: post #3
dot1x wrote: post #2

An extremely interesting paper that puts into perspective a lot of investment "knowledge" shared at nauseom almost everywhere. > Investors have seen countless charts of US stock market performance which start in 1926 and end near the present. But US trading long predates 1926, and the foreshortened perspective that results from a focus on post-1926 data can be misleading. > The goal is to challenge shibboleths about…

> Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks. I feel like I must be missing something. Why are dividends treated differently from price increases? As I'm saving for retirement, "stock goes up" and "stock pays dividends" are basically the same thing in my mind. I assume a dividend is effectively a price increase that gets…

> I feel like I must be missing something. Why are dividends treated differently from price increases?

you're thinking about it the right way, and they aren't treated differently the way you're thinking. They way they are treated differently is,

if you just look at historical stock prices you will miss the dividends being siphoned off, so you have to track the dividends and put those amounts back into your charts, and it's mentioned over and over so you don't look at the data and wonder if they did the naive thing or the complex thing.

and dividends are taxed in that calendar year as income at the corporate level, and again at the personal level, and not with lower capital gains tax rates, so the amount left over that is available to the investor to spend or reinvest is smaller than the nominal amount, and taxes change over time, and different income brackets pay different taxes (which is ignored, i think, they just use worst case marginal tax rates) Because dividends are income-taxed, it makes sense to earmark that money to spend on yourself if you're going to be spending any of the money on yourself.

and large "institutions" frequently don't pay income tax (I'm not an expert, but churches, foundations, and perhaps pension funds and corporations which have large losses/expenses/depreciation to write off) but they do play a large role in the investment markets, driving market prices etc.

You know what it all reminds me of? climate science. You can measure a ton of metrics and track them over time and try to predict the future, but the data is only a very rough estimate of what's going on, and the underlying dynamics change a lot over time.

Re: Stock market charts you never saw (2021)

#23

Post by [deleted] »

roflyear wrote: post #15
recuter wrote: post #10

If I was alive in 1923 and stashed away $8 million in ̶c̶a̶s̶h̶ (Edit: 100y bonds) would only be worth about $140 million today. Had I put it into some fancy ETF (Recall Vanguard dates back only to 1975, but whatever) I'd be a billionaire. That's it, that is the entire difference of less than an order of magnitude. Don't reckon the nickels and the dimes matter much to centenarians. Most people don't even have $8000 t…

What return are you assuming for cash?

[deleted]

Re: Stock market charts you never saw (2021)

#24

Post by antisthenes »

The reason this kind of analysis is irrelevant is that human civilization has only been exploiting oil since ~ early 1900s.

Sure, fossil fuels in the form of coal has been exploited before, but nothing on the scale of coal/gas/oil use that started after the Great Depression and ramped up to peak per capita consumption circa 1970s if memory serves.

So you always have to look at that historic period discounting that, and the massive population growth that came with it.

Tech advancements are slowing down and so is population growth.

Re: Stock market charts you never saw (2021)

#25

Post by metacritic12 »

Dylan16807 wrote: post #16
dot1x wrote: post #11

Earlier quoted context omitted.

> getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.

You should be taking money out at your chosen rate, not depending on how those companies choose to allocate money between dividends vs. buybacks vs. cash piles vs. reinvestment. So treating dividends as reinvested by default makes sense to me.

Exactly -- dividends and share buybacks are nearly the same, but the original paper stripped out the first.

Re: Stock market charts you never saw (2021)

#26

Post by [deleted] »

recuter wrote: post #10

If I was alive in 1923 and stashed away $8 million in ̶c̶a̶s̶h̶ (Edit: 100y bonds) would only be worth about $140 million today. Had I put it into some fancy ETF (Recall Vanguard dates back only to 1975, but whatever) I'd be a billionaire. That's it, that is the entire difference of less than an order of magnitude. Don't reckon the nickels and the dimes matter much to centenarians. Most people don't even have $8000 t…

[deleted]

Re: Stock market charts you never saw (2021)

#27

Post by sieabahlpark »

recuter wrote: post #19
jldugger wrote: post #13

Earlier quoted context omitted.

10x matters quite a bit in generational wealth terms. If every generation doubles the number of plausible claimants to the wealth, thats about what is needed to balance out. On the other hand: > If I was alive in 1922 and stashed away $8 million in cash it would only be worth about $140 million today. Why would it not be worth $8 million?

From peasants shoes to peasants shoes all in three generations, signore Medici. > Why would it not be worth $8 million? https://www.in2013dollars.com/us/inflation/1923

[dead]

Re: Stock market charts you never saw (2021)

#28

Post by danuker »

dot1x wrote: post #11
metacritic12 wrote: post #9

Earlier quoted context omitted.

It seems like this follow up paper clarifies the data's vision a lot more. Notable changes from the previous version discussed in a sister thread here: - There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point. - He no longer argues stocks don't work for the long run, just that bonds we…

> getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.

Dividends aren't enough to cover living expenses.

If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1]

If you want to live solely from dividends, you'll need more than double the capital.

If you want to die with zero [2], it's impossible.

I'd much rather invest in a dividend-accumulating index fund and sell as I please.

[1] - https://www.multpl.com/s-p-500-dividend-yield

[2] - https://www.goodreads.com/book/show/52950915-die-with-zero

Re: Stock market charts you never saw (2021)

#29

Post by NovemberWhiskey »

dot1x wrote: post #11
metacritic12 wrote: post #9

Earlier quoted context omitted.

It seems like this follow up paper clarifies the data's vision a lot more. Notable changes from the previous version discussed in a sister thread here: - There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point. - He no longer argues stocks don't work for the long run, just that bonds we…

> getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.

Why would you exclude part of the total return on an investment? It'd be like ignoring the principal value of a bond because you expect to live on the coupon. Cashflows are cashflows.

Re: Stock market charts you never saw (2021)

#30

Post by lkbm »

recuter wrote: post #19
jldugger wrote: post #13

Earlier quoted context omitted.

10x matters quite a bit in generational wealth terms. If every generation doubles the number of plausible claimants to the wealth, thats about what is needed to balance out. On the other hand: > If I was alive in 1922 and stashed away $8 million in cash it would only be worth about $140 million today. Why would it not be worth $8 million?

From peasants shoes to peasants shoes all in three generations, signore Medici. > Why would it not be worth $8 million? https://www.in2013dollars.com/us/inflation/1923

You've got it backwards. In 1923, your 8 million 1923-dollars was worth what $138 million 2023-dollars is today. You started with $138 million 2023-dollars, but denominated in 1923-dollars that's $8 million.

If you just hold on to it your 1923-dollars have become 2023-dollars, but there's still exactly $8 million of them. You've lost nearly 95% of the value.

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