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Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. Decades ago, companies IPOed with $50m

Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. Decades ago, companies IPOed with $50m to $100m in revenue and citizens could enjoy the growth from there (like MSFT). But now, they tend to have to IPO with $1b+ in revenue (like Facebook). Many unhealthy economic factors drive down the public stock growth rate. That is the core problem. 10% YoY for index funds = healthy. Far lower for rigged economy reasons = a large scale societal problem.

mrep 8y ago
A better explanation is that stock market growth has slowed because real GDP growth has slowed [0], which it should match [1]. Why has it slowed? Well, economists have hotly debated this so you'll have to read into the dozens of theories but not once have I heard it is related startup IPO time. [0]: https://en.wikipedia.org/wiki/Economy_of_the_United_States#GDP https://en.wikipedia.org/wiki/Economy_of_the_United_States#G... [1]: https://www.wise-owl.com/investment-education/is-there-a-correlation-between-gdp-growth-and-stock-market-returns https://www.wise-owl.com/investment-education/is-there-a-cor...
kgwgk 8y ago
> Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. What do you mean? The current market has many problems but recent returns being low is not one of them (of course returns going forward are something else entirely). S&P 500 total returns (annualized) are: 17% over the last one and two years 13% over the last three and five years 11% over the last ten years 9% over the last eleven years (roughly corresponding to the peak of the previous bull market)
- nostrademons 8y ago
  Roughly 28% of the S&P500's 2017 advance was due to FAANG, and 40% due to tech in general: https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-climb-due-to-five-stocks-yes-those-five-2017-07-27 https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-... Take them out and you're much closer to the historical 10% return, and that's in a bull market.
  - kgwgk 8y ago
    Sure, that's one of the problems with the current market. But if understand correctly, HashThis' claim is that the market is not even returning the historical 10% average.
- VLM 8y ago
  The problem with SP500 is survivorship bias, obviously the "top 500" companies is continually redefined every year and is, after all, the top companies, so you'd expect a much better return from a subset of the best companies rather than the market in general. Something like Wilshire Index returns 7% CAGR over the last 20 years. Interestingly, Russell and Dow are about the same 7%. As the economy becomes ever more permanently unequal, the concept of one number representing inflation becomes less meaningful because there is no longer one standard of living or one cultural expectation. Something like M2 is 14000 now and 4000 in 98 so thats 6.4% annually. After tax the Wilshire would only return maybe 3% or so, minus 6.4% inflation, whoops... Or you could use the famous Big Mac price index which is about 2.8% over the same time period, leading to a very slight profit of a fraction of a percent. Are you part of the separate subset of society that lives off M2 or off big macs or ...? So investing in "the market" depending on hand waving provides a modest negative to approximately zero return. If you can pick the subset of winners in advance, the SP500 is quite profitable, although if you can pick winners in advance there's probably more profitable things to predict. Also remember the market can remain irrational longer than you can remain solvent over all values of "irrational" or "solvent" or "longer". I have a medical insurance bill to pay next month, not over ten twenty or hundred year average. Pulling out a constant sales price from the market to live draws down a balance faster than pulling out a constant small percentage of total value over a long time period. Then of course there's long term demographic issues. The USA is supposed to be richer in the future because... why exactly? You might get a bigger slice of the pie, but theres no particular reason to expect the pie overall to expand.
  - kgwgk 8y ago
    This may be a suprise for you but you can invest in an S&P 500 tracker and get the S&P 500 returns. You don’t need to pick the winners in advance. Another thing you may find surprising: the long-term historical average return for small cap indices is higher than for large cap indices.
  - stale2002 8y ago
    I don't think you understand how the SP500 works. When you invest in the SP500 and companies drop out of it, your investment in those companies ALSO drops out. And the publicly stated "return" of the SP500 takes this into account.

mrep 8y ago

A better explanation is that stock market growth has slowed because real GDP growth has slowed [0], which it should match [1]. Why has it slowed? Well, economists have hotly debated this so you'll have to read into the dozens of theories but not once have I heard it is related startup IPO time. [0]: https://en.wikipedia.org/wiki/Economy_of_the_United_States#GDP https://en.wikipedia.org/wiki/Economy_of_the_United_States#G... [1]: https://www.wise-owl.com/investment-education/is-there-a-correlation-between-gdp-growth-and-stock-market-returns https://www.wise-owl.com/investment-education/is-there-a-cor...

kgwgk 8y ago

> Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. What do you mean? The current market has many problems but recent returns being low is not one of them (of course returns going forward are something else entirely). S&P 500 total returns (annualized) are: 17% over the last one and two years 13% over the last three and five years 11% over the last ten years 9% over the last eleven years (roughly corresponding to the peak of the previous bull market)

nostrademons 8y ago
Roughly 28% of the S&P500's 2017 advance was due to FAANG, and 40% due to tech in general: https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-climb-due-to-five-stocks-yes-those-five-2017-07-27 https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-... Take them out and you're much closer to the historical 10% return, and that's in a bull market.
- kgwgk 8y ago
  Sure, that's one of the problems with the current market. But if understand correctly, HashThis' claim is that the market is not even returning the historical 10% average.
VLM 8y ago
The problem with SP500 is survivorship bias, obviously the "top 500" companies is continually redefined every year and is, after all, the top companies, so you'd expect a much better return from a subset of the best companies rather than the market in general. Something like Wilshire Index returns 7% CAGR over the last 20 years. Interestingly, Russell and Dow are about the same 7%. As the economy becomes ever more permanently unequal, the concept of one number representing inflation becomes less meaningful because there is no longer one standard of living or one cultural expectation. Something like M2 is 14000 now and 4000 in 98 so thats 6.4% annually. After tax the Wilshire would only return maybe 3% or so, minus 6.4% inflation, whoops... Or you could use the famous Big Mac price index which is about 2.8% over the same time period, leading to a very slight profit of a fraction of a percent. Are you part of the separate subset of society that lives off M2 or off big macs or ...? So investing in "the market" depending on hand waving provides a modest negative to approximately zero return. If you can pick the subset of winners in advance, the SP500 is quite profitable, although if you can pick winners in advance there's probably more profitable things to predict. Also remember the market can remain irrational longer than you can remain solvent over all values of "irrational" or "solvent" or "longer". I have a medical insurance bill to pay next month, not over ten twenty or hundred year average. Pulling out a constant sales price from the market to live draws down a balance faster than pulling out a constant small percentage of total value over a long time period. Then of course there's long term demographic issues. The USA is supposed to be richer in the future because... why exactly? You might get a bigger slice of the pie, but theres no particular reason to expect the pie overall to expand.
- kgwgk 8y ago
  This may be a suprise for you but you can invest in an S&P 500 tracker and get the S&P 500 returns. You don’t need to pick the winners in advance. Another thing you may find surprising: the long-term historical average return for small cap indices is higher than for large cap indices.
- stale2002 8y ago
  I don't think you understand how the SP500 works. When you invest in the SP500 and companies drop out of it, your investment in those companies ALSO drops out. And the publicly stated "return" of the SP500 takes this into account.