What Drives Stock Market Returns? (2018)

[sambaumann]

For reference when this was written in 2018, a P/E of the S&P of 24 was considered inflated. It stands at 29.34 as of now.

[david-gpu]

It goes to show that time in the market beats timing the market. You may get lucky predicting a downturn, but it's just gambling at that point. Just look at the past century of returns across the world.

[Temporary_31337]

One thing I learned about logic is that if you start with a false statement, whatever comes next doesn't matter "almost all valuations and returns are driven by corporate earnings" no they are not, at least not anymore.

[crazygringo]

Then you're going to have a hard time learning any subject.

Because it's pretty common for educational materials to start with the first-order approximation, then go into the places where you need second-order corrections to it.

If you think the first-order approximation is false because there are exceptions, and you aren't even willing to read a few paragraphs down to find out about the exceptions and nuances, then hey, it's your loss.

[ArtTimeInvestor]

     "...the slowing GDP growth rate in America..."

What are they talking about?

https://fred.stlouisfed.org/series/GDP

[fogcity]

Click the "Edit Graph" button, and change the unit to "Change from Year Ago, Billions of Dollars" to see the evidence.

[OKRainbowKid]

I don't see the contradiction?

[RickJWagner]

If you read that article, you are a prime candidate to benefit from Bogleheads.org

Check it out. You’ll learn the easy, certain, slow way to accumulate wealth. Your future self will be very happy.

[lich_king]

> certain

And by "certain", you mean "not certain". The core tenet are index funds, and while for the average person, they're probably better than stock-picking, you're absolutely exposing yourself to market risk.

[biophysboy]

>The PE ratio reflects earnings today, but the most important metric is projected future earnings.

I think the key words are "projected future". Sometimes that estimation is easy; sometimes it is much harder. New tech introduces uncertainty. Speculative entrepreneurs tell stories that multiply the uncertainty.

[christophilus]

Passive flows. Mike Green has covered this well for a long time. Here’s a recentish interview:

https://m.youtube.com/watch?v=WSpR770JvXg&pp=ygUYbWlrZSBncmV...

[burnt-resistor]

Inflation, financialization, price-profit spirals, and tulip bulbs.

[salkahfi]

(2018)

[deadbabe]

The fact that this was from 2018 and people were saying the same thing about the stock market as what people are saying today, gives me conviction that it’s best to just not worry about it and just buy stocks and start making money.

[techterrier]

vibes

[dehrmann]

> In the short run, the market is a voting machine but in the long run, it is a weighing machine

And we vote on vibes.

[rwmj]

It's a shame Google doesn't let us use a log scale on that graph.

[ProllyInfamous]

>"Time IN the markets typically beats timING the markets."

[rvz]

printing your currency to zero.

[munk-a]

That's a way to bolster it, certainly. None of the listed companies are on the hook for US debt and they'll just relocate if the US becomes a liability. Their value isn't (greatly) at danger of collapse if the debt becomes overwhelming.

There are also healthy ways to encourage economic growth, but those are too boring for the current moment.

[reedf1]

This just isn't right.

[wilkommen]

Idk how people write posts like this anymore. Clearly the stock market isn't rational, and prices of stocks are not tied to financial fundamentals. Stocks are essentially a deflationary alternative currency that only people with disposable income can afford. The rich (and to a smaller extent, the middle class) take the currency which devalues every year (USD) and use it to buy the currency which increases in value every year (stocks and other digital assets), and this is part of the funnel that increases the wealth of the rich at the expense of the poor and middle class. People who think valuations of stocks are tied to fundamentals are smoking medical-grade copium. I too wish that the backbone of our financial system was a not a corrupt, rigged game that benefits a small and decreasing number of people every year, but it is.

[WalterBright]

> Clearly the stock market isn't rational, and prices of stocks are not tied to financial fundamentals.

Stock prices are tied to anticipated future earnings, not past or present financials.

> only people with disposable income can afford

Anyone can invest in stocks with $100 or less. As for disposable income, anyone that can buy beer, drugs, or lottery tickets has disposable income that can be invested in stocks.

> part of the funnel that increases the wealth of the rich at the expense of the poor and middle class

Corporations make money by creating wealth, not "funneling" it from other people.

[tastyfreeze]

The way to fix that is to stop debasing the currency.

I stopped buying stocks a few years ago. The moment there is a contraction of credit or circulating currency we will see a 1929 style crash. Not worth the risk anymore.