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I jumped to the conclusion (page 57) - but the bottom line is the rich get richer. In summary: - If you take more risk you get more reward - this is true base

by anonu 8y ago

I jumped to the conclusion (page 57) - but the bottom line is the rich get richer. In summary: - If you take more risk you get more reward - this is true based on their 150 year dataset and true across countries. - Equity markets and housing provide similar returns (NB: I wonder if that will continue to hold going forward? But there's no reason for that change...) - Housing is less volatile. (NB: Thats strange to me considering you can get a massive loan to buy a house but not so to lever up your 401k... the thinking is leverage causes more volatility). - The return on wealth is greater than that of the economy - almost 2x growth rate over 150 years. (NB: note to self: save more...)

mattnewport 8y ago
> - If you take more risk you get more reward They kind of say this but I don't think they establish it. Bonds return less than stocks and housing but they admit they can't explain equal returns between housing and stocks but lower volatility for housing. They don't look at volatility within stocks where contrary to the theory that risk is correlated with return the data tends to show that less volatile stocks actually have higher returns.
- JumpCrisscross 8y ago
  > the data tends to show that less volatile stocks actually have higher returns Which data show this? Less volatile stocks can, in certain periods of time, be levered to return more than more volatile ones. But that is dependent on borrowing rates being favourable and very specific, and to my understanding rare, equity market dynamics.
  - mattnewport 8y ago
    The book The Missing Risk Premium covers a lot of the evidence. The author give a synopsis here: https://falkenblog.blogspot.com/2013/07/missing-risk-premium-synopsis.html https://falkenblog.blogspot.com/2013/07/missing-risk-premium... Low volatility investing is based around the observation that low volatility stocks have higher average returns than high volatility stocks. This article is a good summary: https://www.researchaffiliates.com/en_us/publications/articles/s_2013_jan_making-sense-of-low-volatility-investing.html https://www.researchaffiliates.com/en_us/publications/articl...
    - deleted 8y ago
      [deleted]
User23 8y ago
Rents aren’t particularly volatile and landlords eventually capture all income gains in the form of rent increases. Also most companies don’t last very long, so equity in a given company is far more likely to go to zero than land with paying tenants.
- trickstra 8y ago
  > landlords eventually capture all income gains in the form of rent increases This is exactly the strongest argument against universal basic income, that nobody wants to address.
  - erik_seaberg 8y ago
    We don't have a nationwide housing shortage. UBI might relieve pressure by letting some people relocate away from the local shortages in strong labor markets.
    - trickstra 8y ago
      Even when people have the meas to relocate, they are reluctant to do it. If the housing market was fluid enough that we could consider nationwide factors, localized high-rent regions like Seattle, Vancouver or Silicon Valley wouldn't even occur in the first place. So with or without nationwide housing shortage, any income increase will still be captured by local landlords.
  - inflatableDodo 8y ago
    It isn't so much an argument against it, but rather an acknowledgement that it is problematic if not coupled to very strong social housing provision.
    - dsfyu404ed 8y ago
      Rent controlling part of the market is so thoroughly considered a failure that it's in economics textbooks. Rent controlling all of the market is a failure to the point where it's in history textbooks. The rent problem is a de-facto blocker for UBI
fuckyah 8y ago
I assume housing as investment. A lot of people mix personal housing and investment housing... There's a lot of issues with the first one, concentration of assets, lifestyle inflation, etc :)
bubblewrap 8y ago
"If you take more risk you get more reward - this is true based on their 150 year dataset and true across countries." Sounds as if they fell prey to survivor bias, neglecting to account for the people and companies who went bankrupt.
- skyleriberg 8y ago
  They address survivorship bias on pages 17 and 18. Based on the methods they used, I don't think they fell prey to it. If there is something lacking in their work there, I would love to know.
  - bubblewrap 8y ago
    That seems to only address the stock market, and it is not obvious to me why an all share index would be immune to it. What happens if a company goes bankrupt? I think they just replace it in the index? So at least people who only invest in all shares indices would have done well?
jeffreyrogers 8y ago
> Housing is less volatile It's for the same reason that PE returns are less volatile. The assets are illiquid and don't get repriced often. They're sold when it's convenient for the seller, which tends to be when they can make money, so the returns appear more less volatile then they actually are.
- kgc 8y ago
  The document mentions that the majority of returns through housing are through rents collected (6%), not capital appreciation (1%). So, not sure about your point.

by anonu 8y ago

mattnewport 8y ago

> - If you take more risk you get more reward They kind of say this but I don't think they establish it. Bonds return less than stocks and housing but they admit they can't explain equal returns between housing and stocks but lower volatility for housing. They don't look at volatility within stocks where contrary to the theory that risk is correlated with return the data tends to show that less volatile stocks actually have higher returns.

JumpCrisscross 8y ago
> the data tends to show that less volatile stocks actually have higher returns Which data show this? Less volatile stocks can, in certain periods of time, be levered to return more than more volatile ones. But that is dependent on borrowing rates being favourable and very specific, and to my understanding rare, equity market dynamics.
- mattnewport 8y ago
  The book The Missing Risk Premium covers a lot of the evidence. The author give a synopsis here: https://falkenblog.blogspot.com/2013/07/missing-risk-premium-synopsis.html https://falkenblog.blogspot.com/2013/07/missing-risk-premium... Low volatility investing is based around the observation that low volatility stocks have higher average returns than high volatility stocks. This article is a good summary: https://www.researchaffiliates.com/en_us/publications/articles/s_2013_jan_making-sense-of-low-volatility-investing.html https://www.researchaffiliates.com/en_us/publications/articl...
  - deleted 8y ago
    [deleted]

User23 8y ago

Rents aren’t particularly volatile and landlords eventually capture all income gains in the form of rent increases. Also most companies don’t last very long, so equity in a given company is far more likely to go to zero than land with paying tenants.

trickstra 8y ago
> landlords eventually capture all income gains in the form of rent increases This is exactly the strongest argument against universal basic income, that nobody wants to address.
- erik_seaberg 8y ago
  We don't have a nationwide housing shortage. UBI might relieve pressure by letting some people relocate away from the local shortages in strong labor markets.
  - trickstra 8y ago
    Even when people have the meas to relocate, they are reluctant to do it. If the housing market was fluid enough that we could consider nationwide factors, localized high-rent regions like Seattle, Vancouver or Silicon Valley wouldn't even occur in the first place. So with or without nationwide housing shortage, any income increase will still be captured by local landlords.
- inflatableDodo 8y ago
  It isn't so much an argument against it, but rather an acknowledgement that it is problematic if not coupled to very strong social housing provision.
  - dsfyu404ed 8y ago
    Rent controlling part of the market is so thoroughly considered a failure that it's in economics textbooks. Rent controlling all of the market is a failure to the point where it's in history textbooks. The rent problem is a de-facto blocker for UBI

fuckyah 8y ago

I assume housing as investment. A lot of people mix personal housing and investment housing... There's a lot of issues with the first one, concentration of assets, lifestyle inflation, etc :)

bubblewrap 8y ago

"If you take more risk you get more reward - this is true based on their 150 year dataset and true across countries." Sounds as if they fell prey to survivor bias, neglecting to account for the people and companies who went bankrupt.

skyleriberg 8y ago
They address survivorship bias on pages 17 and 18. Based on the methods they used, I don't think they fell prey to it. If there is something lacking in their work there, I would love to know.
- bubblewrap 8y ago
  That seems to only address the stock market, and it is not obvious to me why an all share index would be immune to it. What happens if a company goes bankrupt? I think they just replace it in the index? So at least people who only invest in all shares indices would have done well?

jeffreyrogers 8y ago

> Housing is less volatile It's for the same reason that PE returns are less volatile. The assets are illiquid and don't get repriced often. They're sold when it's convenient for the seller, which tends to be when they can make money, so the returns appear more less volatile then they actually are.

kgc 8y ago
The document mentions that the majority of returns through housing are through rents collected (6%), not capital appreciation (1%). So, not sure about your point.