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Yes, stock market growth is largely driven by the real growth in earnings and dividends. Nominal figures are not adjusted for inflation. "Real" numbers are ad

Yes, stock market growth is largely driven by the real growth in earnings and dividends. Nominal figures are not adjusted for inflation. "Real" numbers are adjusted for inflation (in economics-speak). The stock market (e.g. S&P 500 index) has real earnings that have consistently grown over time (although earnings are quite volatile). The real dividends paid by the companies that make up the stock market have also grown over time. Jeremy Siegel, a finance professor at Wharton, wrote a great book called Stocks for the Long Run that shows stocks have grown about 7% per year (inflation adjusted) over the last 200 years. > What would the market look like if we corrected for the money supply? I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example). > It seems like the stock markets (USA) growth is strongly correlated to inflation I'm not sure this is true. In the 70s, inflation was high and stock returns are low. In the 90s, inflation was low and returns were high. In 2021, inflation was high and returns were high.

i3oi3 4y ago
I was discussing low-load index investing with a friend, and the 7% over the last 200 years sounds great. He suggested the hypothesis that that's a reflection of the rise of the United States as a superpower over the last 200 years, and if anything were to impugn the United States' status as the market of refuge, those numbers would not be predictive of consistent long-run returns in the future. That's a hard hypothesis to refute. Are there similar long-run numbers from all stable countries around the world, or is the US market unique in that aspect?
- idkyall 4y ago
  Here's a source referencing the UK stock market: https://globalfinancialdata.com/stocks-for-the-very-long-run-the-uk-100-and-327-years-of-british-equity-history https://globalfinancialdata.com/stocks-for-the-very-long-run... "Between 1692 and 2018, stock prices increased at an average rate of 1.87% per annum before inflation and 0.36% after inflation, and with reinvested dividends averaging 5.04% per annum, investors received a total return of 6.62% per year. £1" Now, that being said, during this time frame, clearly the UK is also a western superpower, and after a certain point in time the UK & US stock markets probably have a very strong correlation with the rise of electronic trading/risk management. For another example of an older equity market, we might look to Japan, which has had a negative rate of return: https://www.afrugaldoctor.com/home/japans-lost-decades-30-years-of-negative-returns-from-the-nikkei-225 https://www.afrugaldoctor.com/home/japans-lost-decades-30-ye... That being said, as we see in that article the monthly $833 purchase DCA still gave a positive return over 30 years.
  - ericmay 4y ago
    I think it's hard to compare Japan with the US or UK or other countries because unlike those countries, Japan can't turn on what I'll call an immigration valve and just flat-out import people to grow the economy.
    - svachalek 4y ago
      Can't or won't?
      - ericmay 4y ago
        Both really. They can't because they won't, but also because they can't.
      - arrosenberg 4y ago
        Would be much harder even if they wanted to. Lots of countries teach their kids English, only one teaches their kids Japanese.
        wahern 4y ago
        You don't need to speak the local language to live and work some place. I wouldn't be surprised if the majority of migrant workers (temporary or permanent) around the world are unable to speak the local language upon entry.
        arrosenberg 4y ago
        That works in America and the UK because there are already large immigrant communities for you to arrive into. If you arrive in Japan speaking Spanish or Hindi today, how's that going to go? It's not impossible, but it would take a lot of time and Japanese culture isn't exactly known for xenophilia.
        deleted 4y ago
        [deleted]
- dsr_ 4y ago
  The US stock market is semi-unique: there are others around the world in the 20th-21st centuries that are comparable, but also correlated. https://en.wikipedia.org/wiki/List_of_stock_exchanges https://en.wikipedia.org/wiki/List_of_stock_exchanges
- aeternum 4y ago
  UK stock markets have returned a similar 7.5% over the last 119 years (~4.9% above inflation). MSCI China over the last 2 decades has returned over 12%.
  - DOsinga 4y ago
    > MSCI China has returned over 12% Not per year: https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa-49522caa9021 https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa...
  - staticman2 4y ago
    I tried to look up what you said about China. IShares MSCI China ETF data on portfoliovisualizer.com only goes back to 2012 and shows 4.27% returns . I don't know if your statement about MSCi China is correct but if so you are cherry picking based on an unusual start date.
jollybean 4y ago
I think this is missing a giant factor, which is let's say 'inflation leverage'. Inflation will hit some parts of the economy differently than others. Consumer goods, homes, stocks, bonds - different kinds of inflation. Quantitative Easing and other such policies, may impact the stock market differently than others. As interest rates drop, the amount of leverage goes up dramatically, causing bubble. Recent increases in valuations were not commensurate with profits, ergo, an ugly kind of inflation.
- jacobr1 4y ago
  > Recent increases in valuations were not commensurate with profits, ergo, an ugly kind of inflation. But we also have downturns that reduce returns significantly. If you average out the returns the presumption is that the cost of that "inflation leverage" is accounted in the inevitable bubble pop.
coned88 4y ago
> I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example). I may be a layman but I'm pretty sure that was just one type of inflation. > I'm not sure this is true. In the 70s, inflation was high and stock returns are low. In the 90s, inflation was low and returns were high. In 2021, inflation was high and returns were high. I'm not exactly talking about returns. I mean prices. In my eyes when you look at the S&P 500, every time there's money printing it's like a rolling snowball. It just gets bigger and bigger. But it's weird because that growth itself is not reflective of companies doing things but just them investing money or buying back stocks.
- svachalek 4y ago
  I think there's a subtle bit that a lot of people don't see about the stock market, that it's trading dollars for bits of companies. This says something about the value of those companies, but also about the value of dollars. I think a lot of what we've seen over the past two years makes little sense if you think about it in terms of the value of American companies, but from the perspective of the value of a dollar (to those who have easy access to them) it's all a lot more logical.
VirusNewbie 4y ago
>Jeremy Siegel, a finance professor at Wharton, wrote a great book called Stocks for the Long Run that shows stocks have grown about 7% per year (inflation adjusted) over the last 200 years You two are talking past each other. When he says inflation, he means M2, you're referencing something that adjusts to CPI.
throw0101a 4y ago
> I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example). See also Japan for several decades: * https://fred.stlouisfed.org/graph/?g=PA7P https://fred.stlouisfed.org/graph/?g=PA7P
itsoktocry 4y ago
We don't have to speculate on this stuff, or base it on academic research from books: market P/E is easy to look up. Lo and behold it fluctuates dramatically. Same with stock returns. Averaging 7% doesn't mean you get that return annually, or ever for that matter.

i3oi3 4y ago

I was discussing low-load index investing with a friend, and the 7% over the last 200 years sounds great. He suggested the hypothesis that that's a reflection of the rise of the United States as a superpower over the last 200 years, and if anything were to impugn the United States' status as the market of refuge, those numbers would not be predictive of consistent long-run returns in the future. That's a hard hypothesis to refute. Are there similar long-run numbers from all stable countries around the world, or is the US market unique in that aspect?

idkyall 4y ago
Here's a source referencing the UK stock market: https://globalfinancialdata.com/stocks-for-the-very-long-run-the-uk-100-and-327-years-of-british-equity-history https://globalfinancialdata.com/stocks-for-the-very-long-run... "Between 1692 and 2018, stock prices increased at an average rate of 1.87% per annum before inflation and 0.36% after inflation, and with reinvested dividends averaging 5.04% per annum, investors received a total return of 6.62% per year. £1" Now, that being said, during this time frame, clearly the UK is also a western superpower, and after a certain point in time the UK & US stock markets probably have a very strong correlation with the rise of electronic trading/risk management. For another example of an older equity market, we might look to Japan, which has had a negative rate of return: https://www.afrugaldoctor.com/home/japans-lost-decades-30-years-of-negative-returns-from-the-nikkei-225 https://www.afrugaldoctor.com/home/japans-lost-decades-30-ye... That being said, as we see in that article the monthly $833 purchase DCA still gave a positive return over 30 years.
- ericmay 4y ago
  I think it's hard to compare Japan with the US or UK or other countries because unlike those countries, Japan can't turn on what I'll call an immigration valve and just flat-out import people to grow the economy.
  - svachalek 4y ago
    Can't or won't?
    - ericmay 4y ago
      Both really. They can't because they won't, but also because they can't.
    - arrosenberg 4y ago
      Would be much harder even if they wanted to. Lots of countries teach their kids English, only one teaches their kids Japanese.
      - wahern 4y ago
        You don't need to speak the local language to live and work some place. I wouldn't be surprised if the majority of migrant workers (temporary or permanent) around the world are unable to speak the local language upon entry.
        arrosenberg 4y ago
        That works in America and the UK because there are already large immigrant communities for you to arrive into. If you arrive in Japan speaking Spanish or Hindi today, how's that going to go? It's not impossible, but it would take a lot of time and Japanese culture isn't exactly known for xenophilia.
        deleted 4y ago
        [deleted]
dsr_ 4y ago
The US stock market is semi-unique: there are others around the world in the 20th-21st centuries that are comparable, but also correlated. https://en.wikipedia.org/wiki/List_of_stock_exchanges https://en.wikipedia.org/wiki/List_of_stock_exchanges
aeternum 4y ago
UK stock markets have returned a similar 7.5% over the last 119 years (~4.9% above inflation). MSCI China over the last 2 decades has returned over 12%.
- DOsinga 4y ago
  > MSCI China has returned over 12% Not per year: https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa-49522caa9021 https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa...
- staticman2 4y ago
  I tried to look up what you said about China. IShares MSCI China ETF data on portfoliovisualizer.com only goes back to 2012 and shows 4.27% returns . I don't know if your statement about MSCi China is correct but if so you are cherry picking based on an unusual start date.

jollybean 4y ago

I think this is missing a giant factor, which is let's say 'inflation leverage'. Inflation will hit some parts of the economy differently than others. Consumer goods, homes, stocks, bonds - different kinds of inflation. Quantitative Easing and other such policies, may impact the stock market differently than others. As interest rates drop, the amount of leverage goes up dramatically, causing bubble. Recent increases in valuations were not commensurate with profits, ergo, an ugly kind of inflation.

jacobr1 4y ago
> Recent increases in valuations were not commensurate with profits, ergo, an ugly kind of inflation. But we also have downturns that reduce returns significantly. If you average out the returns the presumption is that the cost of that "inflation leverage" is accounted in the inevitable bubble pop.

coned88 4y ago

> I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example). I may be a layman but I'm pretty sure that was just one type of inflation. > I'm not sure this is true. In the 70s, inflation was high and stock returns are low. In the 90s, inflation was low and returns were high. In 2021, inflation was high and returns were high. I'm not exactly talking about returns. I mean prices. In my eyes when you look at the S&P 500, every time there's money printing it's like a rolling snowball. It just gets bigger and bigger. But it's weird because that growth itself is not reflective of companies doing things but just them investing money or buying back stocks.

svachalek 4y ago
I think there's a subtle bit that a lot of people don't see about the stock market, that it's trading dollars for bits of companies. This says something about the value of those companies, but also about the value of dollars. I think a lot of what we've seen over the past two years makes little sense if you think about it in terms of the value of American companies, but from the perspective of the value of a dollar (to those who have easy access to them) it's all a lot more logical.

VirusNewbie 4y ago

>Jeremy Siegel, a finance professor at Wharton, wrote a great book called Stocks for the Long Run that shows stocks have grown about 7% per year (inflation adjusted) over the last 200 years You two are talking past each other. When he says inflation, he means M2, you're referencing something that adjusts to CPI.

throw0101a 4y ago

> I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example). See also Japan for several decades: * https://fred.stlouisfed.org/graph/?g=PA7P https://fred.stlouisfed.org/graph/?g=PA7P

itsoktocry 4y ago

We don't have to speculate on this stuff, or base it on academic research from books: market P/E is easy to look up. Lo and behold it fluctuates dramatically. Same with stock returns. Averaging 7% doesn't mean you get that return annually, or ever for that matter.