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Stock Market Returns Are Anything but Average

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Re: Stock Market Returns Are Anything but Average

#271

Post by baby »

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?

I understood it as: HODL

Re: Stock Market Returns Are Anything but Average

#272

Post by akomtu »

ericmay wrote: post #170
tut-urut-utut wrote: post #32

Earlier quoted context omitted.

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?

> What is the point of such trivia? That most of the profit or loss happens during the days of high volatility? Simply that you shouldn't try and time the market, but continue to "buy and hold". The likelihood of picking these exact 10 or 20 days is near 0, so it's an irrational thing to do.

I'd politely disagree. The massive fall and recovery around March 2020 was easy to predict, so I did and made a handsome amount of money. I mean, if a small asteroid fell on an important trade route or if another serious pandemic began, would you seriously suggest to just hold the stocks?

Re: Stock Market Returns Are Anything but Average

#273

Post by baby »

grumpwagon wrote: post #82
tut-urut-utut wrote: post #32

Earlier quoted context omitted.

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?

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.

Re: Stock Market Returns Are Anything but Average

#274

Post by BeetleB »

boringg wrote: post #84

I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…

I did the same analysis. There's no 20+ year period where it lost money.

http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in...

Re: Stock Market Returns Are Anything but Average

#275

Post by nostrademons »

ISL wrote: post #233
robjan wrote: post #209

Earlier quoted context omitted.

You own the stock in perpetuity, not just for a year. As long as you don't expect the company to go bust any time soon that's not a bad PE ratio.

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 environment: another 1970s inflationary episode would do it. (Indeed, Warren Buffett made a lot of his money investing in Coca-Cola and See's Candies during the 1970s.)

Re: Stock Market Returns Are Anything but Average

#276

Post by OldHand2018 »

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;…

> obviously the investors 95 years ago in the F.W. Woolworth Company and the Kennecott Mines Company didn't do quite as well, which is precisely why nobody would write an article today about buying and holding Woolworth's stock.

I don’t know about Kennecott Mines, but Woolworth’s never missed a quarterly dividend payment from 1926 until 1995, and they resumed again in 2003 (they are now named Foot Locker, FYI). Nobody who bought Woolworth stock in 1926 lost money if they just HODL and passed it on to their kids.

Re: Stock Market Returns Are Anything but Average

#277

Post by programmertote »

boringg wrote: post #84

I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…

Somewhat related question: where/how did you acquire that data? I have been meaning to run some simulations on the S&P 500 historical daily closing data, but I can't seem to find a place that provides the data covering for the last 40-50 years.

Thanks in advance for your answer!

Re: Stock Market Returns Are Anything but Average

#278

Post by kgwgk »

caturopath wrote: post #112
boringg wrote: post #84

I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up…

The S&P had one 22-year drawdown in its history, the Great Depression. Second place was 4 years. If people planned to contribute once in their life, the risk of buying the top before a long drawdown would be relevant. Most people spend decades of their life buying investments. Even folks with bad luck seldom buy the absolute top -- positions acquired a couple months before are out of the drawdown that much sooner. No…

> Second place was 4 years.

What about mid-2000 to late-2006?

And that's in nominal terms, because it underperformed cash from mid-2000 to mid-2013 (and quite longer against bonds).

Re: Stock Market Returns Are Anything but Average

#279

Post by altvali »

grumpwagon wrote: post #82
tut-urut-utut wrote: post #32

Earlier quoted context omitted.

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?

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.

The part about timing it perfectly is not true. You can time it, for example predict that the market will crash, shift your money to bonds now, the market goes up for another year and then dips below the level you exited at. At that point, you can shift back and you'd have made less money than someone who timed it perfectly but more money than someone who stayed.

Re: Stock Market Returns Are Anything but Average

#280

Post by charwalker »

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.

If one is equally likely to miss both good and bad days, but overall the market is up 10%+ in a year (repeated over decades), then money left in the market will double every 7 years or so (Rule of 72 [1]). In that way it is almost always preferable to invest and hold in index funds.

The S&P 500 has returned about 13.6% return per year from 2010-2020 [2], or doubling your money about every 5.5 years. If that rate continues or increases then of course it makes no sense to try and time the good or bad days.

Of course, some will argue that a pure index fund market won't be priced correctly as it is active/day traders who continually buy and sell to set a proper market rate. If everyone buys and holds like Bitcoin then there is no true reflection of the companies value in the stock. Those that would go under otherwise may be buoyed or bought out just for their stock value. There are many opinion articles out there on the topic, but so far it hasn't been observed at scale (I think).

[1] https://en.wikipedia.org/wiki/Rule_of_72

[2] https://www.businessinsider.com/personal-finance/average-sto...

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