71–80 of 282 posts
There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding companies for a long period of time.
Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
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…
It would be cool to merge in some longer-term historical data as the article author has done, instead of just using actually-tradable assets like I've done.
Per the article, the author considers these charts "misleading":
> Charts such as Figure 9, with their accompanying commentary, and combined with the distinctive behavior of the product function, may lead investors to mis-anchor their expectations about the future performance of bond and stock investments. Faced with a yawning visual gap, and apprised of the numerical dominance of stock returns (in Siegel 2014, estimated at 6.6% real versus 3.6% for bonds), an investor readily infers that bonds are never going to out-perform stocks over any lengthy period.
I'm not sure I agree with the conclusion. A log scale hides a lot of volatility, but it's still fairly obvious that the stocks line has a lot more volatility, prolonged periods of substantial drowdowns (painful!)...
As another commenter points out, this article's use of price-only data (even if adjusted for inflation) is intellectually dishonest, ignoring returns from dividends. And yes, your typical price-only, non-inflation-adjusted charts from Yahoo Finance / Google Finance / Apple Stocks should probably be considered intellectually dishonest, or at least confusing, in my opinion...
Earlier quoted context omitted.
How much more would you have with a savings account? Apparently the $140M number was bonds. Edit: Or, theoretical bonds that match inflation and don't actually exist?
In a non-funny-money-world, government bonds would yield more than expected inflation. No one would ever give the government money expecting to lose money. Only in a world where you can always count on the government to lower interest rates ad-infinitum to keep itself solvent which pushes up the value of your bonds to someone who's willing to pay more money to lose the same amount of money later (a greater fool - alt…
What would they do? Is there a dominating (stochastically) alternative?
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, a…
> human civilization has only been exploiting oil since ~ early 1900s. Solar is within oil's error bars on a cost per kWh basis. Sure, there are kinks in storage and transport to work out. But the fundamental cost of energy doesn't look likely to change in the coming century.
Earlier quoted context omitted.
How much more would you have with a savings account? Apparently the $140M number was bonds. Edit: Or, theoretical bonds that match inflation and don't actually exist?
In a non-funny-money-world, government bonds would yield more than expected inflation. No one would ever give the government money expecting to lose money. Only in a world where you can always count on the government to lower interest rates ad-infinitum to keep itself solvent which pushes up the value of your bonds to someone who's willing to pay more money to lose the same amount of money later (a greater fool - alt…
How about a hypothetical?
Let's say government bonds pay 3%, they have done so for decades, and we're confident they will keep doing so for decades.
So right off the bat, no lowering of interest rates ad-infinitum.
Let's also say inflation is 4%.
Everyone wants to beat inflation. But you need to find an investment opportunity for that. And the higher an investment yields, the riskier it is.
If you can't find a good investment, what's plan B? Surely it's not putting your money in a vault and losing 4% a year. Isn't plan B buying the government bonds and losing only 1% a year?
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, a…
Sure, but it begs the question what happens when fossil fuel exploitation inevitably is curtailed drastically; either early by necessity because of reasonable legislation, or a bit later because of a stronger ecological collapse or depletion. Solar, wind, or whatever Future Tech is unlikely to have the same direct mine->refine->commodity->sell->use cycle on which a lot of this edifice is built. This could be quite re…
What’s that mean? Solar is providing energy at similar costs.
I wonder if in 100 years from now, people will casually be talking about their nice (but modest) London two-bedroom apartment they bought for 100m pounds.
Until the beginning of the 20th century, stocks were viewed as a purely speculative investment. The idea that buy and hold will provide great returns is a modern one and is supported by the growth of the stock market in the 20th century. There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding compani…
That's certainly true in marketing material of fund managers. But it's not true in honest academic papers, like this one. There's lots of data out that about total returns of the stock market, that takes into account dividends and survivorship bias.
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…
Removing dividend does make sense because dividends are taxed. You cannot reinvest all dividends, unless you're using a tax advantaged account.