The geometric mean (6.9) is all that really matters for investors, not the arithmetic mean (8.4) - the arithmetic mean under-weights the importance of negative years to long term performance.
For example, if the market is down 20% one year and up 20% the next year, the arithmetic mean will be 0%, but you'll be down 4% (0.8*1.2 = 0.96), which is reflected in the geometric mean of (about) -2%.
Who cares about returns over the next 150 years? Even half that is excessive. Someone investing at age 18 might care about the subsequent 50 years.
It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments.
Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.
"The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150."
No, I think the question is more subtle ...
Will the relative power and influence of the US grow similarly.
... and I think that may be a very good bet.
The three closest "competitors" - the Eurozone, China and Japan - are, in their own unique ways, dysfunctional basket cases:
Europe's northern savers and taxpayers have to pay for southern workers to retire at 60 ... and southern workers need to eat benefit losses to avoid further (br)exits. This is a not-insignificant economic and cultural mismatch and the results of even minor adjustments are riots in the streets[1] ... or boring, orderly referenda[2].
It is unknown whether the CCP can survive any meaningful slowdown in growth and whether much of the growth of the last 10-15 years (enormous empty cities) was substantive or useful at all.
Japan is undergoing civilizational and cultural collapse.
So ... while there is much dysfunction - both economically and politically - in the United States, it is an enormous, resource rich country that can exist wholly independently from the rest of the world.
It also enjoys absolute control of the worlds oceans and brutally dictates economic and geo politics[3].
In a world of troubled and fraught investments, the US is probably the least troubled and fraught.
More interesting that power and influence, which is an open question, is demographics. There is little to be done about shifting world demographics. Even if the us stays the premier world superpower, can that offset massive declines in the amount of people producing and consuming everywhere? While the us may actually be okay with shifting demographics (Zeihan has some interesting stuff on this), most major economies are facing rapidly declining populations over the next couple of decades.
The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.
It does not need to . What matters is how much profits large companies are earning. There is no indication that profits are slowing. Even if GDP only grows at 2%/year, if multinationals generate 10% annual profit margins, that is $ that must still go to investors even if GDP growth is much lower.
When you compare foreign markets to the US, the US still comes out ahead by almost every metric. There is little indication to suggest this will change. Every problem that the US has, other countries have worse. So relatively speaking ,the US still will be ahead.
> The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.
I don't think that's required. Most of these analyses use US stock data because it's so easy to gather compared to international data. The do trends hold internationally, but the magnitudes are reduced. So if you think the US will regress closer to the international mean (and I'd agree) then you can use things like the shape of the bell curve, just not the height. And indeed, this bears out if you look at the markets of the UK or most of the EU. Pretty much any reputable adviser will tell you that that's the consensus, that future returns will probably be lower for the next few decades than they were for the last few. (Usually you see this in the media amplified to a more ridiculous version but that's modern clickbait reporting for you.)
There are other possibilities like we could stagnate for 3 decades like Japan. But yes, that's investing, that's the nature of the bets you're taking.
I'm having trouble finding the quotes but around the turn of last century British economists were looking at the US's explosive economic growth compared to the UK and attributed it to the US having the equivalent of a sudden injection of capital in the form of a whole continent full of free real estate. That is, they reasoned that the UK's growth was limited to what they could do on their existing, mostly already owned and developed land but the US had more physical space for the balloon to expand into. They reasoned that soon that would happen though and the US would grow to fill that space and eventually its economic growth would slow down closer to the UK's. That clearly didn't happen then. I don't think the lesson is the US is exceptional and will continue to outpace the world forever, but I do think that a lesson is that predicting this stuff is hard and reasonable-sounding ad hoc hypothesis don't always bear out.
> The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.
Over the next 150 years I have no idea. But over the next 30-50 then almost certainly. No other country is even close and most seem quite comfortable with the global state of affairs all things considered. USA hegemony has created a stable world where the vast majority of people are far better off than their ancestors. It isn't perfect of course but there's no reason to think anyone else would do better. Especially when compared to the previous tenant, Europe.
Therefore investing mechanically in the whole world might be a safer bet. Other than currency risk, home bias investment never felt like the optimal approach to me, even if your home is the world’s most powerful economy.
> The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.
> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.
This is why it's suggested that unthinking mechanical investors invest globally, not just in the US. For example, VT, a single set and forget index fund has 40% international exposure. That's to speak nothing of the S&P 500 companies that do business internationally.
Your point is valid - we shouldn't take single-country risk in investing. Assuming you believe the world as a whole will get more productive and value creating, globally diversifying your stocks is the answer.
As an example that supports your point, the Japan stock market (Nikkei) peaked in 1989 and STILL has not returned to that high.
I think about this a lot when you consider the world's largest companies today aren't stocks but sovereign wealth funds and oil reserves. Similarly in days past they were other state-owned entities like the East India Company.
The S&P 500 is not everything there is to be had...
I find the inflation as a variable very interesting. Countries that don't have strong economies generally tend to have higher inflation. So we may continue to see the stock market continue to rise indirectly due to inflation but the net return would be much lower.
You can only evaluate returns compared to the risk-free return (ie treasuries) - and favor treasuries cause less variance.
Stock market success depends entirely on when in history you got in and got out. When it comes to US dominance over the next century - who knows. I do trust in Fed interventionism and willingness to print money - so that certainly favors stock market investment.
Personally I find stock market is too high a variance and I prefer not speculate with money I can't afford to lose.
Buffet himself said their biggest peak to trough was 50%. Fine if you're already rich and investing a fund. Not so great if it's kiddos college money.
> Of course a country’s stock market will perform well as that country ascends to become the world’s dominant superpower.
There is probably more at play too. The number of banks, for example, has been declining steadily over time [1] as has the internet allowed single corporations connect to more buyers (nationally and internationally). Just think of all the local stores that Amazon has displaced.
> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.
If things go badly then the money I would have from not investing "mechanically" would probably be as useless as the investments. If everything is going to decline continually it seems the greater reward will almost always be in the investment. This also assumes you only invest in the current world superpower, seeking global diversification would probably be wise if you see a major change in polarity.
It's too hard to swallow for most people but you're right. There are significant headwinds coming ahead for most markets whilst productivity gains have stalled. See Robert J. Gordon's paper "IS U.S. ECONOMIC GROWTH OVER? FALTERING INNOVATION CONFRONTS THE SIX HEADWINDS".
I really think millenials should consider hedging their bet, maybe even spend 100% of their income.
>> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.
Maybe, but this describes the investment strategy of pretty much every index-based fund and they've been the big winners over a long time frame. Why do you care what happens to a market 100+ or even 50 years from now?
I don’t think we were much of a dominant superpower until after World War 2. Lots of Europe was decimated but our infrastructure wasn’t and we also won the Cold War . We had large factories created also.
If some other superpower does come around you could just try to find a foreign index fund and adjust your investments.
I’d argue the average person’s investing window is more like 30-40 years, not 150.
And even then, you don’t have to be the dominant superpower to see a rising stock market. Plenty of examples of smaller countries who have seen substantial market gains.
This is an analysis of U.S. stock market returns over the past 150 years.
A few insights:
The average return of the U.S. stock market has been 8.4% per year over the past 151 years (1871 to 2022); this is the "real total return" reflecting dividends and inflation
While the U.S. stock market has trended upwards over time, the market has declined in 31% of all years on record (47 years out of 151 years in total); for example: in 2022, the U.S. stock market dropped by 23.3%
The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%)
In other words, the stock market has never declined over any 20-year time period!
Sources: Professor Robert Shiller and Yahoo Finance; note: the “U.S. stock market” refers to the S&P Composite index from 1871 to 1957, and the S&P 500 index from 1957 until today
For me, the most shocking passage of his piece is this one:
> ...from the end of 1964 through 1981. Here’s what took place in that interval:
DOW JONES INDUSTRIAL AVERAGE
Dec. 31, 1964: 874.12
Dec. 31, 1981: 875.00
Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move.
And here’s a major and very opposite fact: During that same 17 years, the GDP of the U.S.–that is, the business being done in this country–almost quintupled, rising by 370%. Or, if we look at another measure, the sales of the FORTUNE 500 (a changing mix of companies, of course) more than sextupled. And yet the Dow went exactly nowhere.
I think a useful analogy for engineers is that companies are machines, a black box that takes some amount of resource as inputs, and turn it into some outputs.
If we collapse the vector of those inputs (such as labor, materials, capital) and outputs (products, services) to a single unit such as "dollars" by which we measure those things, then any sustainable (i.e. profitable) business creates more output than input.
Personally, I like owning companies, because I like owning black boxes that take money in and produce more money out. :)
I do think the long-termist view, which this page promotes, raises several questions:
Do you believe that companies will, on average, continue being profitable in the long term?
Or do you believe that in the long term, profit margins drop to zero?
If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?)
I do appreciate the graphs on this page, especially the rolling 5/10/20 year ones. When I get some free time, I may adapt that concept for my side project https://totalrealreturns.com/ which lets you graph the inflation-adjusted, dividend-reinvested returns of any publicly traded stock, ETF, or mutual fund.
The argument that the US stock market always goes up over relatively long periods of time seems somewhat flawed to me. If it were true that it was always best to invest in US stocks, everyone’s (longish term) money would flow to that asset class, thus undervaluing something else in return. So it just seems that it can’t be a dominant strategy or else everyone would be doing it. Wouldn’t that leave assets like bonds, real estate, foreign stocks, etc undervalued?
So at ~7% it takes 10 years to double your money. So that gives one about 4 doublings in ones working career. So, a bad ten year stretch like 98-08 which provided basically 0% over the decade makes a huge difference in ones ability to retire based solely on 401K/etc style returns and should be a strong argument in favor of defined benefit plans that basically pool the risk over a much longer horizon vs going it alone.
I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns. But if you go looking for such a thing, the returns are closer to 1/2 the s&p. Its really the kind of thing the government should backstop but... "socialism" even if the math works out. Which really pisses me off because its apparently ok to "socalize" the poor mgmt at $BIGCORP that gets a handout once a decade or so at the current rate after spending billions on stock by backs but not socialize individual retirement risk in a meaningful way.
Note that there are 20 year periods where the net gain is close to 0. People starting their economically productive life during one of those intervals will not see any economic gains from investing in the stock market, and to the extent that the market echoes the economy their economic situation will likewise be stagnant. And worse, there will be all the people from the lucky intervals extorting these unluckly people to pick themselves up by their bootstraps.
People born in the lucky periods almost always describe their results as due to hard work, never as due to luck. And unlucky timing is almost always attributed to personal failures, not the economic situation.
One thing that's not intuitive is the drag of management fees in the long run.
If I have 5% average stock market returns over 60 years and pay 0.5% fees, then $100k invested grows by $13M. If I pay 1.5% fees, it nearly halves. This is why I'm a fan of Vanguard and other low-fee index funds.
Can we see the same analysis for the Japanese stock market? The JP225 index is still lower than it was 1989. Yes, the US is in a different situation. But any predictions towards the future of the US stock market is gambling IMHO. There are simply way too many variables and unknowns to determine future stock prices.
I remember people advising to buy things with loans and invest your cash because your returns are more than your interest rate. If you don't need that money for 10+ years, that might make sense, but when things go south, your money (and probably your income) will be gone, but you'll still have payments. (That's assuming the money is actually invested, and not frivolously spent.) Advice like that is why Wells Fargo, Bank of America, and JPMorgan are rubbing their hands in their shiny towers. F*** them.
Start investing and pumping money into the market, guys! This time it's safe, market will never go down again and noone will lose money! Promise!
/s
It's funny how they talk of money and market value being erased as if the money is definitely subtracted from balance without being added somewhere else, literally deleted from existance.
When the market crashes for you and others, there's always someone in the high echelons of the game who ends up getting richer.
Stock market up a lot today, almost 3%. It's days like today that make it worthwhile. You cannot have upside without also having some down days or even, occasionally, down years.
It's interesting how the DJIA has done so much better then the S&P 500. I think this shows the value of periodically removing weak components from the index and choosing only the largest of already large companies instead of 500 large companies. the DJIA also held up well in the 2000-2002 bear market.
Buffet’s simple advice for anyone wanting to invest but not sure how to start - Have at least some exposure the S&P500 for the long run. Pretty sound advice.
This justifies historical investment strategies like the very simple buy and hold forever (only blue chips and salsa please) or something marginally more sophisticated like dogs of the dow. The real question is whether growth will continue, or at least during our life times, be kept afloat by unfair practices by the wealthy.
This is bullshit: past returns aren't indicative of future returns. You can't predict the next catastrophe. "Zooming out" is the perfect way to loose money, even better than CAPM or similar stupid things.
Edit: Since I'm being downvoted, go read: "The misbehaviour of markets" by Mandelbrot or "The black swan" by Taleb, or just reflect on what "zooming " really is: averaging to keep out outliers.
Edit 2: to put it in less salty terms: yes, now it's down 23% from the previous year, so probably it will go up and you will make a profit, as long as US economy doesn't collapse. But you don't know the probability of such an event, since the distribution of returns in markets is unknown (we're not yet at the limit at which the central limit theorem holds). Not knowing that probability, you may die before you see your return. Or, as said, US economy may collapse, your bank or broker will, etc. Meaningless risks? Perhaps in a world of gaussian distributions, not our.
All that long-term data and presentation is lovely and all, but I disagree with the conclusion of "buying and holding has been a simple and straightforward way to build wealth".
Saying investing $1,000 in 1871 would be $22M now doesn't help me. Saying $1,000 in 1969 is now $23K doesn't help me - I wasn't alive then. It's not practical.
I didn't have $1,000 of savings until my late 20s. After paying for bachelors and masters, I had to borrow $500 from friend to eat and live until next pay check. Then car, house, furniture.
And if that $1,000 I invested in late 20s turns into $2,260 in 20 years - whoop-dee-doo, who cares.
Conclusion should be "buying and holding has been a simple and straightforward way to store wealth". But not going to build wealth unless I'm active - building resume, building business. In addition, I might as well take that $1,000 and swing for the fences and turn it into $10,000 or more looking for the next AAPL, GOOG etc. like venture capital.
[+] [-] LanguageGamer|3 years ago|reply
The geometric mean (6.9) is all that really matters for investors, not the arithmetic mean (8.4) - the arithmetic mean under-weights the importance of negative years to long term performance.
For example, if the market is down 20% one year and up 20% the next year, the arithmetic mean will be 0%, but you'll be down 4% (0.8*1.2 = 0.96), which is reflected in the geometric mean of (about) -2%.
[+] [-] danhak|3 years ago|reply
The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.
To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.
[+] [-] gumby|3 years ago|reply
It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments.
Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.
[+] [-] rsync|3 years ago|reply
No, I think the question is more subtle ...
Will the relative power and influence of the US grow similarly.
... and I think that may be a very good bet.
The three closest "competitors" - the Eurozone, China and Japan - are, in their own unique ways, dysfunctional basket cases:
Europe's northern savers and taxpayers have to pay for southern workers to retire at 60 ... and southern workers need to eat benefit losses to avoid further (br)exits. This is a not-insignificant economic and cultural mismatch and the results of even minor adjustments are riots in the streets[1] ... or boring, orderly referenda[2].
It is unknown whether the CCP can survive any meaningful slowdown in growth and whether much of the growth of the last 10-15 years (enormous empty cities) was substantive or useful at all.
Japan is undergoing civilizational and cultural collapse.
So ... while there is much dysfunction - both economically and politically - in the United States, it is an enormous, resource rich country that can exist wholly independently from the rest of the world.
It also enjoys absolute control of the worlds oceans and brutally dictates economic and geo politics[3].
In a world of troubled and fraught investments, the US is probably the least troubled and fraught.
[1] https://en.wikipedia.org/wiki/Yellow_vests_protests
[2] https://en.wikipedia.org/wiki/Dutch_withdrawal_from_the_Euro...
[3] https://en.wikipedia.org/wiki/2022_Nord_Stream_pipeline_sabo...
[+] [-] nscalf|3 years ago|reply
[+] [-] getToTheChopin|3 years ago|reply
Companies in the S&P500 index are based in the U.S., but most of them earn revenues internationally as well.
"Roughly 40% of S&P 500 revenues are generated outside of the U.S., and about 58% of Information Technology company sales were sourced from abroad."
Source: https://www.globalxetfs.com/sector-views-sp-500-sensitivity-...
So, the performance of the U.S. stock market in the next 150 years will not rely solely on U.S. specific economic growth.
[+] [-] ptr|3 years ago|reply
[+] [-] paulpauper|3 years ago|reply
It does not need to . What matters is how much profits large companies are earning. There is no indication that profits are slowing. Even if GDP only grows at 2%/year, if multinationals generate 10% annual profit margins, that is $ that must still go to investors even if GDP growth is much lower.
When you compare foreign markets to the US, the US still comes out ahead by almost every metric. There is little indication to suggest this will change. Every problem that the US has, other countries have worse. So relatively speaking ,the US still will be ahead.
[+] [-] ketralnis|3 years ago|reply
I don't think that's required. Most of these analyses use US stock data because it's so easy to gather compared to international data. The do trends hold internationally, but the magnitudes are reduced. So if you think the US will regress closer to the international mean (and I'd agree) then you can use things like the shape of the bell curve, just not the height. And indeed, this bears out if you look at the markets of the UK or most of the EU. Pretty much any reputable adviser will tell you that that's the consensus, that future returns will probably be lower for the next few decades than they were for the last few. (Usually you see this in the media amplified to a more ridiculous version but that's modern clickbait reporting for you.)
There are other possibilities like we could stagnate for 3 decades like Japan. But yes, that's investing, that's the nature of the bets you're taking.
I'm having trouble finding the quotes but around the turn of last century British economists were looking at the US's explosive economic growth compared to the UK and attributed it to the US having the equivalent of a sudden injection of capital in the form of a whole continent full of free real estate. That is, they reasoned that the UK's growth was limited to what they could do on their existing, mostly already owned and developed land but the US had more physical space for the balloon to expand into. They reasoned that soon that would happen though and the US would grow to fill that space and eventually its economic growth would slow down closer to the UK's. That clearly didn't happen then. I don't think the lesson is the US is exceptional and will continue to outpace the world forever, but I do think that a lesson is that predicting this stuff is hard and reasonable-sounding ad hoc hypothesis don't always bear out.
[+] [-] nemo44x|3 years ago|reply
Over the next 150 years I have no idea. But over the next 30-50 then almost certainly. No other country is even close and most seem quite comfortable with the global state of affairs all things considered. USA hegemony has created a stable world where the vast majority of people are far better off than their ancestors. It isn't perfect of course but there's no reason to think anyone else would do better. Especially when compared to the previous tenant, Europe.
[+] [-] layer8|3 years ago|reply
Of course the whole world could go into a multi-decades-long recession, but then we’ll have much more serious problems anyway.
[+] [-] mypastself|3 years ago|reply
[+] [-] lastofus|3 years ago|reply
> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.
This is why it's suggested that unthinking mechanical investors invest globally, not just in the US. For example, VT, a single set and forget index fund has 40% international exposure. That's to speak nothing of the S&P 500 companies that do business internationally.
https://www.morningstar.com/etfs/arcx/vt/portfolio
[+] [-] nimz|3 years ago|reply
As an example that supports your point, the Japan stock market (Nikkei) peaked in 1989 and STILL has not returned to that high.
However, even if you were incredible unlucky and had bought in at the 1989 peak in Japan, if you had an internationally diversified portfolio, you would be OK. E.g. a 30/30/20/20 Jp Stocks/Intl Stocks/Jp Bonds/Intl Bonds portfolio purchased in 1989 at the Nikkei peak would have more than doubled by 2014 (see here: https://www.bogleheads.org/forum/viewtopic.php?t=265807 and also https://www.afrugaldoctor.com/home/japans-lost-decades-30-ye...).
[+] [-] hammock|3 years ago|reply
The S&P 500 is not everything there is to be had...
[+] [-] pacetherace|3 years ago|reply
[+] [-] dpweb|3 years ago|reply
Stock market success depends entirely on when in history you got in and got out. When it comes to US dominance over the next century - who knows. I do trust in Fed interventionism and willingness to print money - so that certainly favors stock market investment.
Personally I find stock market is too high a variance and I prefer not speculate with money I can't afford to lose.
Buffet himself said their biggest peak to trough was 50%. Fine if you're already rich and investing a fund. Not so great if it's kiddos college money.
[+] [-] huijzer|3 years ago|reply
There is probably more at play too. The number of banks, for example, has been declining steadily over time [1] as has the internet allowed single corporations connect to more buyers (nationally and internationally). Just think of all the local stores that Amazon has displaced.
[1]: https://www.stlouisfed.org/on-the-economy/2021/december/stea...
[+] [-] TheFreim|3 years ago|reply
If things go badly then the money I would have from not investing "mechanically" would probably be as useless as the investments. If everything is going to decline continually it seems the greater reward will almost always be in the investment. This also assumes you only invest in the current world superpower, seeking global diversification would probably be wise if you see a major change in polarity.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] dionidium|3 years ago|reply
[+] [-] bionsystem|3 years ago|reply
I really think millenials should consider hedging their bet, maybe even spend 100% of their income.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] wintogreen74|3 years ago|reply
Maybe, but this describes the investment strategy of pretty much every index-based fund and they've been the big winners over a long time frame. Why do you care what happens to a market 100+ or even 50 years from now?
[+] [-] zitterbewegung|3 years ago|reply
If some other superpower does come around you could just try to find a foreign index fund and adjust your investments.
[+] [-] rr888|3 years ago|reply
[+] [-] refurb|3 years ago|reply
And even then, you don’t have to be the dominant superpower to see a rising stock market. Plenty of examples of smaller countries who have seen substantial market gains.
[+] [-] guidedlight|3 years ago|reply
I’m sure given an investment in Argentina’s stock market in 1900, it would have now been lost many times over.
[+] [-] dangus|3 years ago|reply
For example, Spotify is a Swedish company listed on the NYSE.
[+] [-] snowwrestler|3 years ago|reply
The qualities of the U.S. that helped it become a superpower, also help it have a high-performing domestic economy.
[+] [-] catskul2|3 years ago|reply
[+] [-] WeylandYutani|3 years ago|reply
[+] [-] getToTheChopin|3 years ago|reply
A few insights:
The average return of the U.S. stock market has been 8.4% per year over the past 151 years (1871 to 2022); this is the "real total return" reflecting dividends and inflation
While the U.S. stock market has trended upwards over time, the market has declined in 31% of all years on record (47 years out of 151 years in total); for example: in 2022, the U.S. stock market dropped by 23.3%
The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%)
In other words, the stock market has never declined over any 20-year time period!
Sources: Professor Robert Shiller and Yahoo Finance; note: the “U.S. stock market” refers to the S&P Composite index from 1871 to 1957, and the S&P 500 index from 1957 until today
[+] [-] cs702|3 years ago|reply
https://fortune.com/1999/11/22/warren-buffett-on-stock-marke... [a]
For me, the most shocking passage of his piece is this one:
> ...from the end of 1964 through 1981. Here’s what took place in that interval:
Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move. And here’s a major and very opposite fact: During that same 17 years, the GDP of the U.S.–that is, the business being done in this country–almost quintupled, rising by 370%. Or, if we look at another measure, the sales of the FORTUNE 500 (a changing mix of companies, of course) more than sextupled. And yet the Dow went exactly nowhere.--
[a] https://archive.ph/ZbKZK
[+] [-] compumike|3 years ago|reply
If we collapse the vector of those inputs (such as labor, materials, capital) and outputs (products, services) to a single unit such as "dollars" by which we measure those things, then any sustainable (i.e. profitable) business creates more output than input.
Personally, I like owning companies, because I like owning black boxes that take money in and produce more money out. :)
I do think the long-termist view, which this page promotes, raises several questions:
Do you believe that companies will, on average, continue being profitable in the long term?
Or do you believe that in the long term, profit margins drop to zero?
If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?)
Does a "steady state economy" exist? https://en.wikipedia.org/wiki/Steady-state_economy And if so, are steady-state corporate profits zero? Is there a "tendency of the rate of profit to fall" https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... or is this in some degree compartmentalized with the turnover of industry over time?
I do appreciate the graphs on this page, especially the rolling 5/10/20 year ones. When I get some free time, I may adapt that concept for my side project https://totalrealreturns.com/ which lets you graph the inflation-adjusted, dividend-reinvested returns of any publicly traded stock, ETF, or mutual fund.
[+] [-] pcurve|3 years ago|reply
"As always, Warren Buffet put it best: “the stock market is a device for transferring money from the impatient to the patient”."
[+] [-] boatsie|3 years ago|reply
[+] [-] StillBored|3 years ago|reply
I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns. But if you go looking for such a thing, the returns are closer to 1/2 the s&p. Its really the kind of thing the government should backstop but... "socialism" even if the math works out. Which really pisses me off because its apparently ok to "socalize" the poor mgmt at $BIGCORP that gets a handout once a decade or so at the current rate after spending billions on stock by backs but not socialize individual retirement risk in a meaningful way.
[+] [-] jgeada|3 years ago|reply
People born in the lucky periods almost always describe their results as due to hard work, never as due to luck. And unlucky timing is almost always attributed to personal failures, not the economic situation.
[+] [-] oli5679|3 years ago|reply
If I have 5% average stock market returns over 60 years and pay 0.5% fees, then $100k invested grows by $13M. If I pay 1.5% fees, it nearly halves. This is why I'm a fan of Vanguard and other low-fee index funds.
(1.045 ^ 60) - 1 --> 13.0
(1.035 ^ 60) - 1 --> 6.8
[+] [-] EVa5I7bHFq9mnYK|3 years ago|reply
[+] [-] rr888|3 years ago|reply
https://www.credit-suisse.com/media/assets/corporate/docs/ab...
[+] [-] KETpXDDzR|3 years ago|reply
[0] https://tradingeconomics.com/japan/stock-market
[+] [-] theandrewbailey|3 years ago|reply
[+] [-] lizardactivist|3 years ago|reply
It's funny how they talk of money and market value being erased as if the money is definitely subtracted from balance without being added somewhere else, literally deleted from existance.
When the market crashes for you and others, there's always someone in the high echelons of the game who ends up getting richer.
[+] [-] paulpauper|3 years ago|reply
It's interesting how the DJIA has done so much better then the S&P 500. I think this shows the value of periodically removing weak components from the index and choosing only the largest of already large companies instead of 500 large companies. the DJIA also held up well in the 2000-2002 bear market.
[+] [-] bernardv|3 years ago|reply
[+] [-] mnky9800n|3 years ago|reply
[+] [-] fedeb95|3 years ago|reply
Edit: Since I'm being downvoted, go read: "The misbehaviour of markets" by Mandelbrot or "The black swan" by Taleb, or just reflect on what "zooming " really is: averaging to keep out outliers.
Edit 2: to put it in less salty terms: yes, now it's down 23% from the previous year, so probably it will go up and you will make a profit, as long as US economy doesn't collapse. But you don't know the probability of such an event, since the distribution of returns in markets is unknown (we're not yet at the limit at which the central limit theorem holds). Not knowing that probability, you may die before you see your return. Or, as said, US economy may collapse, your bank or broker will, etc. Meaningless risks? Perhaps in a world of gaussian distributions, not our.
[+] [-] DwnVoteHoneyPot|3 years ago|reply
Saying investing $1,000 in 1871 would be $22M now doesn't help me. Saying $1,000 in 1969 is now $23K doesn't help me - I wasn't alive then. It's not practical.
I didn't have $1,000 of savings until my late 20s. After paying for bachelors and masters, I had to borrow $500 from friend to eat and live until next pay check. Then car, house, furniture.
And if that $1,000 I invested in late 20s turns into $2,260 in 20 years - whoop-dee-doo, who cares.
Conclusion should be "buying and holding has been a simple and straightforward way to store wealth". But not going to build wealth unless I'm active - building resume, building business. In addition, I might as well take that $1,000 and swing for the fences and turn it into $10,000 or more looking for the next AAPL, GOOG etc. like venture capital.