4 ms·

Hasnt the stock market historically grown at a 10% annual rate

mschaecher 16y ago
Factor inflation and taxes.
carbocation 16y ago
Yes, I agree (~8% over the very long run I think). But it's not timescale invariant. Look at what it's done over the past 10 years, for example (-1%). I'm not trying to say that the stock market doesn't grow over time. I'm just trying to say that if the mean annual growth is truly 8%, it has a really high variance. Thus, there are some things that I wouldn't count on (say, the ability to arbitrage from a 3%-interest loan into straight profit, for example) which I might try to do if the return was consistently 5%. I suppose that for me, when I think conservative, I think consistent.
- chipsy 16y ago
  The 8% claim is misleading and possibly harmful. Nobody wants returns to be that "lumpy" - down for 10 years! Who could stand it? All investments have a certain lifespan on them - with things like bonds and T-bills, interest payments and maturity are fixed and contractually obligated, while with equities it's up to company performance. To really do well, you have to think like a trader and run all investments over a specific timeframe with predetermined exit signals for profit, loss, or trend changes. It may look as if Warren Buffett lets money sit in the market. But he is actually running trades over decades of time. He has to - he literally has too much money to make useful(percentage-wise) profit in smaller time frames.
  - carbocation 16y ago
    I agree that the 8% number is, at once, misleading, harmful, and true! True because it is a simple observation, but misleading because people behave as though the future recapitulates the past, of which there is no guarantee. I think that the "misleading and harmful" part is more important--which was the crux of my original comment about the lack of consistency.
- infinite8s 16y ago
  Not only that - the last half century has been the most productive period of US growth in it's history. Just because it happened during the last 50 years doesn't mean the same will occur in the future. At the moment, economists are thinking that with the enormous amounts of debt in this country, it will be a while before we see any kind of sustained growth.

Factor inflation and taxes.

Yes, I agree (~8% over the very long run I think). But it's not timescale invariant. Look at what it's done over the past 10 years, for example (-1%). I'm not trying to say that the stock market doesn't grow over time. I'm just trying to say that if the mean annual growth is truly 8%, it has a really high variance. Thus, there are some things that I wouldn't count on (say, the ability to arbitrage from a 3%-interest loan into straight profit, for example) which I might try to do if the return was consistently 5%. I suppose that for me, when I think conservative, I think consistent.

chipsy 16y ago
The 8% claim is misleading and possibly harmful. Nobody wants returns to be that "lumpy" - down for 10 years! Who could stand it? All investments have a certain lifespan on them - with things like bonds and T-bills, interest payments and maturity are fixed and contractually obligated, while with equities it's up to company performance. To really do well, you have to think like a trader and run all investments over a specific timeframe with predetermined exit signals for profit, loss, or trend changes. It may look as if Warren Buffett lets money sit in the market. But he is actually running trades over decades of time. He has to - he literally has too much money to make useful(percentage-wise) profit in smaller time frames.
- carbocation 16y ago
  I agree that the 8% number is, at once, misleading, harmful, and true! True because it is a simple observation, but misleading because people behave as though the future recapitulates the past, of which there is no guarantee. I think that the "misleading and harmful" part is more important--which was the crux of my original comment about the lack of consistency.
infinite8s 16y ago
Not only that - the last half century has been the most productive period of US growth in it's history. Just because it happened during the last 50 years doesn't mean the same will occur in the future. At the moment, economists are thinking that with the enormous amounts of debt in this country, it will be a while before we see any kind of sustained growth.