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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

#251

Post by jonfw »

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…

Currency is transactional, not a store of wealth. I'd say it's a bad idea to store your wealth in currency, absolutely, and I'd cite it's lack of inherent value as the reason why.

Re: Stock Market Returns Are Anything but Average

#252

Post by nscalf »

lg wrote: post #132
JohnJamesRambo wrote: post #109

Earlier quoted context omitted.

> Is it going to suddenly pop? Unlikely, I disagree. https://www.currentmarketvaluation.com/models/buffett-indica... Unless you mean will it pop tomorrow, then yes that is unlikely. But the chances it pops “soon” seem quite likely. And it will be very ugly. I don’t know if we have ever seen a spring coiled this tight from money printing. https://fred.stlouisfed.org/series/M1SL

but what is a 'pop'? maybe ordinary swings in both directions due to various minor panics and manias and profit-takings that average out to a decade of nominal gains but depressed real returns?

'Pop' can also take the form of increasing inflation, making people take bigger risks for returns, leading to a bigger pop that is not coming soon. People saying this market can't sustain need to think about the inverse: what needs to happen for this market cycle to last 5-10+ years?

"The market can stay irrational longer than you can stay solvent."

Re: Stock Market Returns Are Anything but Average

#253

Post by MR4D »

PragmaticPulp wrote: post #124
lotsofpulp wrote: post #110

Earlier quoted context omitted.

> 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…

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…

I agree completely.

Downturns are events where many participants learn how the market really works.

It’s an ugly reality check, but thankfully we have them frequently. Otherwise you get really overbought and then events like the tulip mania/bubble happen.

Also, this isn't limited to stocks - back when whale oil was a thing, there were all sorts of booms and busts, depending mostly if a ship came in with or without a whale.

Instead of Wall Street analysts, there were people with telescopes to view the incoming ships as far from port as possible to gain an information advantage.

All of my research in this suggests this behavior is hardwired into human DNA and won’t ever change.

Re: Stock Market Returns Are Anything but Average

#254

Post by hattmall »

pc86 wrote: post #133
dasil003 wrote: post #105

Earlier quoted context omitted.

Yeah so what are you going to do about it?

What kind of argumentative nonsense comment is this?

Hedge with options. You can even out the highs and lows, make your returns predictable with in a tight window and act accordingly.

Re: Stock Market Returns Are Anything but Average

#255

Post by kgwgk »

seanmcdirmid wrote: post #162
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…

Where does Amazon get all of the stock for employee compensation? Do they just have a large pool of outstanding stock in reserve?

Essentially they create them as they go.

Total shares outstanding plus outstanding stock awards:

    Dec 2011 : 468 million
    Dec 2012 : 470 million
    Dec 2013 : 476 million
    Dec 2014 : 483 million
    Dec 2015 : 490 million
    Dec 2016 : 497 million
    Dec 2017 : 504 million
    Dec 2018 : 507 million
    Dec 2019 : 512 million
    Dec 2020 : 518 million
Existing shareholders lose 1% per year.

Re: Stock Market Returns Are Anything but Average

#256

Post by gimmeThaBeet »

tut-urut-utut wrote: post #219
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 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.

The author's colleague had a blog post on the topic, reasoning that missing either the best or worst was not a particularly interesting "what-if" since the best and worst days are both associated with the same bouts of higher volatility. He used the 200 day moving average to try and model the effect of 'missing' both. It honestly didn't turn out so bad, but one takeaway is that backtesting (aside from not being a necessarily great projection) does not model personalities.

https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-...

Re: Stock Market Returns Are Anything but Average

#257

Post by boringg »

selimthegrim wrote: post #229
boringg wrote: post #216

Earlier quoted context omitted.

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.

They use a decent size shoe of several decks and reshuffle more than just in between rounds. Furthermore, the dealer only deals from a subset of the shoe IIRC.

I figured they had a way to break up the benefits of card counting - thanks for informing me!

Re: Stock Market Returns Are Anything but Average

#258

Post by jplr8922 »

The author is doing a lot of work to explain that the statistical average takes a long time to converge to the expected return because the distribution is volatile (high stdv, skewness, kurtosis, etc).

Do note however that his analysis only concerns itself with the US. Including other countries would show that US is one of the few countries where stock markets were never interupted for a long period of time because of its political stability. If you dont beliveve it will keep going this way in the future, invest in other countries.

Re: Stock Market Returns Are Anything but Average

#259

Post by wbc »

mabbo wrote: post #37

I decided to play with these numbers myself because I had some questions. I believe the data is the same as I found here[0] The average single-year return over that period was about 7.5%, not 10%- though in half of years, the market did better than 11%. But what happens if we bucketize by a larger period, like 5-year? My method was to take $1, multiply by the return for 5 years in a row, and then take the 5th root of…

Did you add in the dividends?

https://www.multpl.com/s-p-500-dividend-yield/table/by-year

Re: Stock Market Returns Are Anything but Average

#260

Post by DennisP »

thisisnico wrote: post #204
ryandrake wrote: post #187

Earlier quoted context omitted.

> Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on. This distinction is practically useless, unless you own enough shares to have even tiny sway at shareholder meetings. Owning 1/1000000000th of a company doesn't mean any extra value or power to you. The big dif…

Edit: (Some) Stocks that don’t pay dividends still pay you. Most stocks now don’t pay dividends. Either they reinvest in the business (growing the stock’s value) or buyback shares with extra cash, (alternative method to dividends as they’re returning value to you the shareholder.)

Ethereum will effectively do share buybacks starting in July. They're switching to a system that burns the majority of transaction fees. If share buybacks are equivalent to dividends, then arguably this is equivalent to paying dividends to ETH holders, funded by the fee revenue paid by users.
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