21 ms·

Stock market charts you never saw (2021)

456 points by dot1x 4y ago

danielmarkbruce 4y ago
TLDR: interest rates used to be higher.
dot1x 4y ago
An extremely interesting paper that puts into perspective a lot of investment "knowledge" shared at nauseom almost everywhere. > Investors have seen countless charts of US stock market performance which start in 1926 and end near the present. But US trading long predates 1926, and the foreshortened perspective that results from a focus on post-1926 data can be misleading. > The goal is to challenge shibboleths about the expected outcomes of buy-and-hold stock market investing, and to raise questions about the expected performance of stocks versus bonds over long periods. > Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks. > Total return measured on the century scale presumes an investor who never needs to spend the dividends or interest received. No real investor, individual or institution, has that luxury. And there is one class of individual investor, now of growing importance within the financial planning literature as the Baby Boom generation ages, for whom the total return metric is particularly malaprop: retirees. Once portfolio accumulation ceases with retirement, portfolio income must be spent to live. Under those circumstances real price return, over short periods lasting two or three decades, becomes an important metric. By that measure, an investment in stocks has been dicey indeed. --- Just to whet your appetite some more: > Figure 4 [1] illuminates how much of the long-term return on stocks since 1926 has been due to sustained high inflation on the one hand, and to the favorable enhancement from re-investing dividends on the other. Under the one depiction, the portfolio returned about 9% compounded, from near the high in the Twenties to near the low in the Oughts; under the other, only about 1.5%. > Few contemporary investors expect a multi-decade return on their stock portfolios of 1 2% per year. They have no reason to expect such poor results, because most investors have never seen a post-1926 chart of inflation-adjusted, price-only returns, and have rarely seen any charts extending back past 1896. [1] https://imgur.com/a/QCtugvC https://imgur.com/a/QCtugvC
- lkbm 4y ago
  > Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks. I feel like I must be missing something. Why are dividends treated differently from price increases? As I'm saving for retirement, "stock goes up" and "stock pays dividends" are basically the same thing in my mind. I assume a dividend is effectively a price increase that gets automatically liquidated. I could choose not to re-invest them, but I could also choose to sell some of my non-dividend stock. It is true that, as a future retiree, I need to be looking at grown on a decade-scale, not century scale. That part makes sense. I'm just confused by this separation of dividends.
  - whoomp12342 4y ago
    a dividend is a payout of the companies earnings. rather, the portion the company has chosen not to spend on itself. That amount is divide up by how much % you own in the company. If you owned 50% of all the stock, you would directly receive 50% of their profits less re-investing come dividend time the stock price is how much people are willing to pay for purchase said stock.(consider market share when looking at price, because 2 stocks at $5.2 is the same thing as 1 stock at $10.5) so yes, from your gains perspective it is the same thing but the source of where the increase in your portfolio is entirely different
  - MuffinFlavored 4y ago
    > dividends plus inflation Just to make sure I am following correctly, is this referring to the process which: corporations have had their costs go up roughly 2% per year since 1928, so they have raised their prices roughly 2% per year, making it so that cost increases (labor/good/services/whatever) are "passthroughs" (assuming margins stay the same), passing along increases to customers (who have roughly had their pay increase 2% per year) and because of this, corporations have stayed profitable (more profitable in dollars, "the same" profitable in percentage given margins/inflation?), and share prices have grown?
  - fsckboy 4y ago
    > I feel like I must be missing something. Why are dividends treated differently from price increases? you're thinking about it the right way, and they aren't treated differently the way you're thinking. They way they are treated differently is, if you just look at historical stock prices you will miss the dividends being siphoned off, so you have to track the dividends and put those amounts back into your charts, and it's mentioned over and over so you don't look at the data and wonder if they did the naive thing or the complex thing. and dividends are taxed in that calendar year as income at the corporate level, and again at the personal level, and not with lower capital gains tax rates, so the amount left over that is available to the investor to spend or reinvest is smaller than the nominal amount, and taxes change over time, and different income brackets pay different taxes (which is ignored, i think, they just use worst case marginal tax rates) Because dividends are income-taxed, it makes sense to earmark that money to spend on yourself if you're going to be spending any of the money on yourself. and large "institutions" frequently don't pay income tax (I'm not an expert, but churches, foundations, and perhaps pension funds and corporations which have large losses/expenses/depreciation to write off) but they do play a large role in the investment markets, driving market prices etc. You know what it all reminds me of? climate science. You can measure a ton of metrics and track them over time and try to predict the future, but the data is only a very rough estimate of what's going on, and the underlying dynamics change a lot over time.
nfcampos 4y ago
Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
- metacritic12 4y ago
  It seems like this follow up paper clarifies the data's vision a lot more. Notable changes from the previous version discussed in a sister thread here: - There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point. - He no longer argues stocks don't work for the long run, just that bonds were as good in the past. This is a lower bar to meet as bonds in the past, especially corporate bonds as he's included, are actually quite risky! - Finally there is some argument to be made that bonds are better investments when monitoring technology is poor -- since insiders can steal equityholders' wealth. But the 20th century invented good accounting, auditing, etc to reduce that and drive up equity returns.
  - dot1x 4y ago
    > getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.
    - whall6 4y ago
      There are enough “cash cow” securities that maintain a same / similar share price by distributing heavily for this to make sense. The price wouldn’t show the whole story and the cash could go much further over 100 years than just sitting in a bank account. I don’t know many people that spend 100 years in retirement.
    - Dylan16807 4y ago
      You should be taking money out at your chosen rate, not depending on how those companies choose to allocate money between dividends vs. buybacks vs. cash piles vs. reinvestment. So treating dividends as reinvested by default makes sense to me.
castom 4y ago
[flagged]
recuter 4y ago
If I was alive in 1923 and stashed away $8 million in ̶c̶a̶s̶h̶ (Edit: 100y bonds) would only be worth about $140 million today. Had I put it into some fancy ETF (Recall Vanguard dates back only to 1975, but whatever) I'd be a billionaire. That's it, that is the entire difference of less than an order of magnitude. Don't reckon the nickels and the dimes matter much to centenarians. Most people don't even have $8000 to invest so they plow it all into crypto and beanie babies and we scoff at them trying to x10. Food for thought. Memento Mori. Edit for clarity: I obviously didn't mean stash cash under the mattress. Sorry for the confusion.
- jldugger 4y ago
  10x matters quite a bit in generational wealth terms. If every generation doubles the number of plausible claimants to the wealth, thats about what is needed to balance out. On the other hand: > If I was alive in 1922 and stashed away $8 million in cash it would only be worth about $140 million today. Why would it not be worth $8 million?
  - quickthrowman 4y ago
    It should read “If I was alive in 1923 and invested $8M in 100y bonds that return the exact rate of inflation, I’d have $140M today” Plugging it into a USD inflation calculator checks out.
    - bobleeswagger 4y ago
      $8 million in cash will always be $8 million in cash. "Stashed it away" is pretty vague but cash is cash.
      - tarboreus 4y ago
        Only if you literally mean physical cash. Banks offered pretty significant interest rates historically.
        4y ago
antisthenes 4y ago
The reason this kind of analysis is irrelevant is that human civilization has only been exploiting oil since ~ early 1900s. Sure, fossil fuels in the form of coal has been exploited before, but nothing on the scale of coal/gas/oil use that started after the Great Depression and ramped up to peak per capita consumption circa 1970s if memory serves. So you always have to look at that historic period discounting that, and the massive population growth that came with it. Tech advancements are slowing down and so is population growth.
- deleted 4y ago
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- cmrdporcupine 4y ago
  Sure, but it begs the question what happens when fossil fuel exploitation inevitably is curtailed drastically; either early by necessity because of reasonable legislation, or a bit later because of a stronger ecological collapse or depletion. Solar, wind, or whatever Future Tech is unlikely to have the same direct mine->refine->commodity->sell->use cycle on which a lot of this edifice is built. This could be quite relevant for current generations before they retire, but even more so for my children's generation. You can already see the political fallout with various ugly regimes in various petro-states starting to panic. Wait until people's 401Ks start to explode.
  - eatsyourtacos 4y ago
    >Wait until people's 401Ks start to explode Maybe we shouldn't have moved to such a completely moronic system them which shifts all the risk to the individual and just "hope" they magically make money on something they have no control over. It all works until it doesn't.
    - cmrdporcupine 4y ago
      Sure, I completely agree with you. No argument there.
    - astrange 4y ago
mooreds 4y ago
You'll want to download the PDF and then scroll to page 43 to see the charts. The previous pages are about methodology, I think, I scrolled past them to see the pretty pictures. Interesting look at truly long term results from the US stock market and bond market. Back ot the 1850s. Also looks at when stocks and bonds lagged "the average" or performed poorly for decades. I guess my question is: where else are you going to go to invest your savings? Maybe real estate (but it can be a lot of work), maybe cash (but you can lose a lot to inflation)? Government pension or annuities can be an option, but then you're essentially giving up some upside and pushing the same decisions onto another person (though they have more options, since they have much more money). Just another argument for a diversified portfolio, rebalanced regularly.
- autokad 4y ago
  two trends have me highly concerned: 1) the baby boomers are now starting to retire in large numbers and they will go from investing and lending to consuming, selling stocks, etc. 2) population decline is a thing. many countries have already started the downward trend, and most of the world will be declining by 2050. this puts a huge ? on all asset classes. Some other points about stocks, their 10% returns was done by many studies that looked at performance between 1952 and 1999 (just after the great depression ended and just before the dotcom bust). almost all asset classes over that 20 year period (1999-2019) out performed stocks, including gold and oil.
Kon-Peki 4y ago
The reason all the stock market charts you see start in 1926 is because they come from CRSP data, which starts in 1926. If you are a student at a university almost anywhere in the world that offers an MBA or other advanced degree in business or finance, it subscribes to the CRSP data service with 95+% probability. If you are an engineering or a CS student, the university contract covers you! You'll probably have to talk to someone over at the business school, but they'll get you access for all your ML research needs! The main advantage over other data providers is that they publish their methodology and formulas, and have a full-time staff dedicated to data quality. Oh, and they're cheaper than everyone else (it's a service run by the University of Chicago instead of a for-profit corporation), so it has become the default academic data source. If you publish research using some other data, colleagues will want to know why.
- q845712 4y ago
  just a nit, but especially given the economics outlook advanced by and named for the U of C, the line between the University of Chicago and a for-profit corporation is both thin fuzzy.
  - Kon-Peki 4y ago
    Haha :) By the way, the story goes that back in 1960, one of the big Wall Street firms wanted to know whether, since the depression, it was better to invest in big companies or little companies. They asked all the universities in and around NYC, who all told them that nobody knew. One of the executives was a U of C grad and asked them one day when he was in Chicago. They said that they had no idea but that if they gave them money they’d find out. When they published the study, everyone started calling and asking for access to the data, and thus the entire field of academic financial research was born :) The study was done on a univac 2 and it blew people’s minds that such quantities of data could be analyzed in one go.
b33j0r 4y ago
My primary criticism is that it took me several minutes to see a chart. The exposition is very interesting. I don't judge a paper by its cover, but it kinda took a lot of work to read something that was described as visual! Is there a nuance to this publishing process that makes this make sense?
- rwmj 4y ago
  He really needs to read Edward Tufte! (Even plain Latex tries to put the figures near to the text.)
- deleted 4y ago
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- bumby 4y ago
  >Is there a nuance to this publishing process that makes this make sense? This can sometimes be an artifact of submitting for peer review where tables and figures are uploaded as separate documents than the manuscript and then combined into a single document. I think this makes it easier to format the tables and figures for a journal.
roussanoff 4y ago
A paper on a similar topic but with much better execution: The Rate of Return on Everything, 1870–2015, https://economics.harvard.edu/files/economics/files/ms28533.pdf https://economics.harvard.edu/files/economics/files/ms28533..... Among other things, it spans multiple countries, and includes housing in the comparison.
- dot1x 4y ago
  Would be great if you explained how's it better or if it reaches different conclusions.
- nonethewiser 4y ago
  Interesting. Yet so broad that it really can't inform an individual's expectations for their returns.
- mrep 4y ago
  Hacker news discussion on it 4 years ago: https://news.ycombinator.com/item?id=19817584 https://news.ycombinator.com/item?id=19817584
- deleted 4y ago
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aj7 4y ago
"The market can remain irrational longer than you can remain solvent."
- Aachen 4y ago
  That's why one is advised not to invest what one cannot miss
  - anyfoo 4y ago
    But then what? Put it into a money market account where it gets eaten up by inflation?
    - Aachen 4y ago
      More like a bank account falling under the deposit insurance. Don't gamble with money you can't do without, is what I was trying to convey. If you mean for a pension (assuming there is no state-supplied minimum pension that you could live from if necessary), get a pension plan where it stipulates how much you'll get per month rather than something where you depend directly on the market's daily whims. Very wide-spread ETFs are an exception due to their track record: if you are rich enough that you could survive a 15-year market recession then those are an option as well.
      - anyfoo 4y ago
        > Don't gamble with money you can't do without, is what I was trying to convey. That's fair, but my point was that retirements saving are money one "cannot miss" (as in the original comment) or "can't do without". And yet I think it has to be invested, for example in the options you listed, because keeping it in a bank account will only expose it to inflation, and hurt your retirement.
coliveira 4y ago
Until the beginning of the 20th century, stocks were viewed as a purely speculative investment. The idea that buy and hold will provide great returns is a modern one and is supported by the growth of the stock market in the 20th century. There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding companies for a long period of time.
- martincmartin 4y ago
  > There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding companies for a long period of time. That's certainly true in marketing material of fund managers. But it's not true in honest academic papers, like this one. There's lots of data out that about total returns of the stock market, that takes into account dividends and survivorship bias.
- bumby 4y ago
  Do you happen to know where to find historical data on such holdings? For example, how do I find the historical ETF holdings at a particular point in time?
  - Kon-Peki 4y ago
    ETFs? Welllllll, how about mutual funds instead? A lot of ETFs are just exchange-traded mutual funds. Mutual funds are required to periodically report their holdings: https://www.sec.gov/edgar/sec-api-documentation https://www.sec.gov/edgar/sec-api-documentation Rate limit yourself to under 10 requests per second, and put contact info into your user-agent if you'd like them to contact you about problems. > The APIs are updated in real-time as filings are disseminated. The submissions API is updated with a typical processing delay of less than a second; the xbrl APIs are updated with a typical processing delay of under a minute. However these processing delays may be longer during peak filing times.
    - bumby 4y ago
compumike 4y ago
Figures 6 and 9 look a lot like https://totalrealreturns.com/ https://totalrealreturns.com/ , especially with the trendlines on these figures, logarithmic y-axis, (disclosure: my side project, recomputed daily at market close) It would be cool to merge in some longer-term historical data as the article author has done, instead of just using actually-tradable assets like I've done. Per the article, the author considers these charts "misleading": > Charts such as Figure 9, with their accompanying commentary, and combined with the distinctive behavior of the product function, may lead investors to mis-anchor their expectations about the future performance of bond and stock investments. Faced with a yawning visual gap, and apprised of the numerical dominance of stock returns (in Siegel 2014, estimated at 6.6% real versus 3.6% for bonds), an investor readily infers that bonds are never going to out-perform stocks over any lengthy period. I'm not sure I agree with the conclusion. A log scale hides a lot of volatility, but it's still fairly obvious that the stocks line has a lot more volatility, prolonged periods of substantial drowdowns (painful!)... As another commenter points out, this article's use of price-only data (even if adjusted for inflation) is intellectually dishonest, ignoring returns from dividends. And yes, your typical price-only, non-inflation-adjusted charts from Yahoo Finance / Google Finance / Apple Stocks should probably be considered intellectually dishonest, or at least confusing, in my opinion...
- insonable 4y ago
  Yahoo uses the CRSP method (see: factor to adjust price) to back-adjust old prices when dividends and splits occur, so it's not as misleading as you're probably thinking. I'd be surprised if the others didn't do something like this too.
  - compumike 4y ago
    Yahoo does have this “Adjusted Close” column available in their historical data downloads, but they do not use it for charts. Their charts are price-only. Same with Google Finance and Apple Stocks.
    - NovemberWhiskey 4y ago
nostromo 4y ago
The Titanic was built a bit over 100 years ago for 1.5m pounds -- today that'd buy you a nice London two-bedroom apartment. I wonder if in 100 years from now, people will casually be talking about their nice (but modest) London two-bedroom apartment they bought for 100m pounds.
- acdha 4y ago
  Of course, if you convert that to current value that’s something like £235M at current rates, which seems more plausible (and would have been more like £400M without the self-inflicted damage of Brexit). New cruise ships cost more but they’re also larger and have more amenities, and holding so many more passengers means more expenses for things like furnishings.
- nly 4y ago
  Peoples perceptions of number sizes don't change quickly. 1 million will still seem like a big number. It's likely at some point we'll have to re-denominate. There will be a 'new Pound' or something that is worth 100 'old Pounds'. You can see the number phenomenon today. People still talk about "winning £1M on the Lottery" like it'd set them up for a life of luxury. To reasonably replace even a median UK full-time salary for life you're going to need around ~£700K in assets. That leaves £300K for a modest home somewhere outside of London and the South East. One false move with your £1M winnings and you'll end up back in the office. The £ is worth half of what it was in 1994 when the Lottery started.
  - duderific 4y ago
    Or we can make 100 trillion pound notes like in Zimbabwe https://www.cnn.com/2016/05/06/africa/zimbabwe-trillion-dollar-note/index.html https://www.cnn.com/2016/05/06/africa/zimbabwe-trillion-doll...
    - baby 4y ago
      Or japan. In romania people still say “one million” instead of “one hundred”
    - 4y ago
sleton38234234 4y ago
I have a theory. The last 100 years has seen govt spending as percent of gdp increase to ever greater levels. People are expecting more and more handouts and no one wants to pay for it. Without the ability to pay for it via taxes, the govt will eventually have to default on it's currency and thus real returns on fixed income/bonds will have to become increasingly negative. Their article already shows a slight widening between bonds/equities post 1950. My theorey is that for the next 100 years, we'll see a much larger widening between the returns of bonds and equities as more and more governments default on their currency. Thoughts? EDIT: the article I referenced was the one the other poster mentioned: https://economics.harvard.edu/files/economics/files/ms28533.pdf https://economics.harvard.edu/files/economics/files/ms28533.... Also, equity returns should in the long term be equal to Producivity per capita + population growth + inflation + dividends. And If you look at each of those for the last 100 years and the next 100 years for the US, you'll see a pattern. Pop growth down to 0.4 from 1.3. Per capita growth down several percent in the last 20 years vs the 100 years before that and with current PEs where they are, dividends are down to 1.3% from a historical 4.5%. Translation: Future equity returns will be much much closer to inflation than they have been in the past.
- smaddox 4y ago
  Private debt dwarfed public debt until very recently, and it's still significany higher: https://braveneweurope.com/steve-keen-what-is-the-role-of-public-debt-and-private-debt-in-the-next-great-financial-crisis https://braveneweurope.com/steve-keen-what-is-the-role-of-pu... Also GDP is a terrible proxy for economic prosperity. A broken window adds to GDP, but subtracts from prosperity. If we had a better proxy for prosperity, it would be easier to see if government debt was actually net negative or net positive effect. As is, all arguments one way or the other are speculation and ideology.
  - xyzzy123 4y ago
    I think prosperity (particularly if we include health, education, wellbeing etc) is unfortunately very difficult to measure and any attempt necessarily incorporates a lot of speculation and ideology. A forest cleared creates wealth & prosperity, but what was the value of the forest that was lost? What value do we put on natural amenity, biodiversity, a pristine environment? An employee works very long hours, numbers go up. Great. In specific situations though we can ask: was any wealth actually created, or was the wellbeing of the employee and their children simply exchanged for dollars? etc. It's value judgements all the way down.
worik 4y ago
For modern computing/finance type of people (I was but now have reformed) the lack of financial data is a problem. Even if you can get access to every trade, which is hard, the amount of data is not what modern machine learning types require. Thr EMH is a hard mistress too. There is no amount of data that can help you solve unsolvable equations. So alot fall into this trap, synthetic data. Some of the best statisticians on the planet have. It is so tempting to believe that there is money to be made by being cleaver trader I markets. General, there is not. Buy and hold is not a shibolith it is a strategy. It is the only strategy that can be replicated. Synthesizing data to disprove buy and hold is wishful thinking. Data snooping.
- yold__ 4y ago
  Have you heard of Citadel?
- krembanan 4y ago
  The Medallion Fund by Renaissance Technologies has had an average annual return of 71.8% from 1994-2014.
  - ryeights 4y ago
    What is not known, however, is if those returns were achieved through legal means…
    - robbintt 4y ago
      Are you referring to the tax evasion? I think they paid a slap on the wrist. Otherwise I am interested.
      - 314 4y ago
        Bernie Madoff promised high returns while obfuscating his business model as well. It went well until it no longer did.
    - chii 4y ago
moloch-hai 4y ago
Off-topic... I was looking up NRGV, the fraudulent energy storage company (the one with concrete blocks and cranes) which hit $2.4B last year and then fell to a sixth that, before drifting up a bit. According to analysts, if I read the summary right, it should be considered worth $1B, short-term, and $0, long term. Last I checked it had $90M in cash, down from $100M a few weeks ago. Now, with $90M they could buy an actually viable energy storage technology to (most likely) run into the ground. What are these analysts thinking, recommending BUY of a fraudulent company with no better prospects than your average fusion start-up or Hyperloop, and already trading at several times its objective value? Is it a judgment about where ignorant investors will take a no-future company that has been well-hyped, a la Tesla? And, could they be right?
- TylerE 4y ago
  The actual rating doesn’t really matter, it’s the changes that do. Strong from a previous “strong buy” is very different than a strong from a previous of “hold” or even “sell”.
- deleted 4y ago
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devops000 4y ago
It’s very common nowadays to see people suggest investing into S&P500 ETFs and keep them forever. More then 20% of US population owns stocks. I think we are near a change into this paradigm.
- snow_mac 4y ago
  What alternative would you suggest?
  - devops000 4y ago
    Picking stocks only if they are likely to perform better in the future instead of only because they belong to US market. Aka value investing. Or alternatively, have a basic macroeconomic understanding knowing when enter/exit the market. This might not let you pick up the top/bottom but at least is more intelligent than "staying in the market because it was always trending up".
- deleted 4y ago
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- zitterbewegung 4y ago
  What is your suggestion to do instead? Owning a non index fund will have a fee of at least 1% Putting it under your mattress makes you lose from inflation. I'm not sure doing 60 / 40 stocks and bonds could be another solution.
  - Invictus0 4y ago
    Think about your investments intelligently instead of looking for a guaranteed sinecure.
    - moneywoes 4y ago
      Day trading?
    - astrange 4y ago
jorblumesea 4y ago
How is data before 1950 even relevant in today's investing world? Between MMT, finanicialization of the economy, stock buy backs, Bretton Woods, tax codes, robo investing and indexing... Interesting stuff but really not super helpful in assessing risk.
- MuffinFlavored 4y ago
  it seems impossible to assess risk of current environment based on history i wonder if that’s been perpetually true for all of history?
- kqr 4y ago
  I think this sort of retrospective is more about informing people of the possible range of outcomes under various market conditions, rather than claiming to know exact probabilities of specific outcomes.
georgeecollins 4y ago
One of the charts you don't see is the performance of the stock market from say 1900-1950 for countries like Russia, Japan, France or Germany. We have this point of view that the US is a good place to invest, but to an investor in 1900 that might not have been such an obvious choice. Looking back 50 years from now it may seem like it was obvious the US was going to collapse from some political issue and clear that you belong in the stock market of Brazil, Indonesia, or I don't know what.
- throwaway77770 4y ago
  Wouldn't the stock market chart for Russia have a rather sudden stop around 1917?
- dragonwriter 4y ago
  > One of the charts you don't see is the performance of the stock market from say 1900-1950 for countries like Russia The St. Petersberg Stock Exchange closed in 1914, reopened briefly for a short period in 1917, and then did not reopen thereafter. But a comparison of it to the US between 1864 and 1914 is available: https://www.investmentoffice.com/Observations/Markets_in_History/The_Russian_Stock_Market_Before_the_Revolution.html https://www.investmentoffice.com/Observations/Markets_in_His...
  - georgeecollins 4y ago
    That's my point. No one knew the St Petersberg stock exchange would close in 1914. The US stock exchange could close in 2044 and no one would be expecting it. 50 year predictions are unreliable.
- bagacrap 4y ago
  Which is why you're supposed to buy all world indexes like VT. If that doesn't work, it's likely nothing will have (besides gold and ammo).
tiffanyh 4y ago
Geometric mean I’m surprised to see no mention of geometric mean. People far too often incorrectly use Arithmetic Mean (“average”), which doesn’t compute correctly due to the compounding nature of the stock market. https://www.investopedia.com/articles/investing/071113/breaking-down-geometric-mean.asp https://www.investopedia.com/articles/investing/071113/break...
- Galanwe 4y ago
  I don't see how that relates to the article?
  - tiffanyh 4y ago
    The graphs are about long term returns. And how are those returns calculated? Because if they used arthritic mean, it’s overstating the actual annualized return.
    - Galanwe 4y ago
      Two things to note here. First, it does not "overstate" the annualized returns. It just brings a particular view of them, which is the "expected annual return" vs the "compoundable annual return". Both are perfectly equivalent and represent different ways to look at annual returns. I would expect most practitioners to expect the former. Second, this debate is completely irrevant here, as all charts show cumulative returns based on a $1 investment.
- kqr 4y ago
  It looks like they based it on the arithmetic mean of log-returns, which is equivalent to taking the geometric mean.
- 314 4y ago
  One of the main discussions in the paper is about the difference between arithmetic means and geometric means, and how people have different perceptions of annualized returns. Perhaps you should read it (again)?
paulpauper 4y ago
Historical economists have done this going as far back as the 1600s. It can be tracked with records. Records in in the Netherlands are known to be meticulous.
xivzgrev 4y ago
This is an interesting analysis, but leaves out a big point: the structural evolution of markets over time Back in 19th century, accounting standards weren’t as strict, information was not as widely available, and central banks didn’t exist. It was the Wild West so no wonder you had bubbles and long periods of draw downs Today the US fed would quickly intervene to turn markets around. When Japan crashed in late 80s, they didn’t know QE was the answer so they struggled for a decade. When the US crashed for similar reasons in 2008, they knew QE would help and jumped on it. The stock market was back on track in a freaking year. It didn’t recover to the heights but it was trending on right direction. To believe we would have similar long draw downs like the 19th century, you’d have to believe that something structural would change where current valuations would decrease: a shrinking economy (very unlikely), or capital flight elsewhere (also very unlikely given US track record). The US economy has a lot of advantages and I’m having a hard time seeing a long term bear case for it
- kccqzy 4y ago
  Furthermore, the perception of the stock market has also evolved greatly since the 19th century. To first approximation, the more people believe in buy-and-hold, the more money gets invested, the more the stock market goes up. It's like a self-fulfilling prophecy.
- trompetenaccoun 4y ago
  The Japanese market crashed precisely because of excessive government intervention, not a lack thereof. It was heavily manipulated by Japan's own central bank, which worked well initially, but they were eventually pressured into liberalizing by the US and it went downhill from there. Sure, one could argue they should have doubled down and they probably could have kept it going for another decade or two. Eventually though these systems always collapse, planned economies do not work. Look into the term "window guidance" to learn more about what they were doing. The US isn't doing anything on the scale Japan was doing but it's still less of a free market than it used to be. Keep in mind also that the US doesn't exist in empty space, the factories where American products are made are located in places like China and there are heavy financial links to this country that follows the exact strategy Japan had, with even more centralization and state ownership actually. This is also part of the US economy now, you can't just ignore that. It's a risk for the US economy, even some of the elites that heavily invested admit this now. Take Soros as a very late example.
bionsystem 4y ago
I read a few books on early 20th century finance and trading last years, some stories are quite fascinating to say the least. I really like this period of time, everything both in the economy and finance / stocks was quite reckless, it still is today of course but it was on a whole other level with bucket shops, insider trading, fake tips, etc. This work is interesting because few people were really doing charts at the time. Prices were recorded as quotes (price+volume) on a "tape" and most people would just read numbers. "Indices" would barely exist and people would construct their own with a poor understanding of how to weight companies in an average (most averages were weighted by stock prices, instead of market capitalisation). And people would talk in $ moves a lot instead of %, meaning that for a lot of people gaining $1 on a $30 stock would be the same as gaining $1 on a $100 stock.
- baby 4y ago
  Damn. I’m wondering if crypto could follow a similar path, especially with ICOs.
daddylongstroke 4y ago
Amazing: a giant (and informative) thread on markets, investing, and value with many asking the same question - "but what else are you going to invest in?" - and not a single mention of building soil, and in turn health, or even "goats"...and I heavily expected goats to be at least mentioned.

456 points by dot1x 4y ago

TLDR: interest rates used to be higher.

An extremely interesting paper that puts into perspective a lot of investment "knowledge" shared at nauseom almost everywhere. > Investors have seen countless charts of US stock market performance which start in 1926 and end near the present. But US trading long predates 1926, and the foreshortened perspective that results from a focus on post-1926 data can be misleading. > The goal is to challenge shibboleths about the expected outcomes of buy-and-hold stock market investing, and to raise questions about the expected performance of stocks versus bonds over long periods. > Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks. > Total return measured on the century scale presumes an investor who never needs to spend the dividends or interest received. No real investor, individual or institution, has that luxury. And there is one class of individual investor, now of growing importance within the financial planning literature as the Baby Boom generation ages, for whom the total return metric is particularly malaprop: retirees. Once portfolio accumulation ceases with retirement, portfolio income must be spent to live. Under those circumstances real price return, over short periods lasting two or three decades, becomes an important metric. By that measure, an investment in stocks has been dicey indeed. --- Just to whet your appetite some more: > Figure 4 [1] illuminates how much of the long-term return on stocks since 1926 has been due to sustained high inflation on the one hand, and to the favorable enhancement from re-investing dividends on the other. Under the one depiction, the portfolio returned about 9% compounded, from near the high in the Twenties to near the low in the Oughts; under the other, only about 1.5%. > Few contemporary investors expect a multi-decade return on their stock portfolios of 1 2% per year. They have no reason to expect such poor results, because most investors have never seen a post-1926 chart of inflation-adjusted, price-only returns, and have rarely seen any charts extending back past 1896. [1] https://imgur.com/a/QCtugvC https://imgur.com/a/QCtugvC

lkbm 4y ago
> Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks. I feel like I must be missing something. Why are dividends treated differently from price increases? As I'm saving for retirement, "stock goes up" and "stock pays dividends" are basically the same thing in my mind. I assume a dividend is effectively a price increase that gets automatically liquidated. I could choose not to re-invest them, but I could also choose to sell some of my non-dividend stock. It is true that, as a future retiree, I need to be looking at grown on a decade-scale, not century scale. That part makes sense. I'm just confused by this separation of dividends.
- whoomp12342 4y ago
  a dividend is a payout of the companies earnings. rather, the portion the company has chosen not to spend on itself. That amount is divide up by how much % you own in the company. If you owned 50% of all the stock, you would directly receive 50% of their profits less re-investing come dividend time the stock price is how much people are willing to pay for purchase said stock.(consider market share when looking at price, because 2 stocks at $5.2 is the same thing as 1 stock at $10.5) so yes, from your gains perspective it is the same thing but the source of where the increase in your portfolio is entirely different
- MuffinFlavored 4y ago
  > dividends plus inflation Just to make sure I am following correctly, is this referring to the process which: corporations have had their costs go up roughly 2% per year since 1928, so they have raised their prices roughly 2% per year, making it so that cost increases (labor/good/services/whatever) are "passthroughs" (assuming margins stay the same), passing along increases to customers (who have roughly had their pay increase 2% per year) and because of this, corporations have stayed profitable (more profitable in dollars, "the same" profitable in percentage given margins/inflation?), and share prices have grown?
- fsckboy 4y ago
  > I feel like I must be missing something. Why are dividends treated differently from price increases? you're thinking about it the right way, and they aren't treated differently the way you're thinking. They way they are treated differently is, if you just look at historical stock prices you will miss the dividends being siphoned off, so you have to track the dividends and put those amounts back into your charts, and it's mentioned over and over so you don't look at the data and wonder if they did the naive thing or the complex thing. and dividends are taxed in that calendar year as income at the corporate level, and again at the personal level, and not with lower capital gains tax rates, so the amount left over that is available to the investor to spend or reinvest is smaller than the nominal amount, and taxes change over time, and different income brackets pay different taxes (which is ignored, i think, they just use worst case marginal tax rates) Because dividends are income-taxed, it makes sense to earmark that money to spend on yourself if you're going to be spending any of the money on yourself. and large "institutions" frequently don't pay income tax (I'm not an expert, but churches, foundations, and perhaps pension funds and corporations which have large losses/expenses/depreciation to write off) but they do play a large role in the investment markets, driving market prices etc. You know what it all reminds me of? climate science. You can measure a ton of metrics and track them over time and try to predict the future, but the data is only a very rough estimate of what's going on, and the underlying dynamics change a lot over time.

nfcampos 4y ago

Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927

metacritic12 4y ago
It seems like this follow up paper clarifies the data's vision a lot more. Notable changes from the previous version discussed in a sister thread here: - There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point. - He no longer argues stocks don't work for the long run, just that bonds were as good in the past. This is a lower bar to meet as bonds in the past, especially corporate bonds as he's included, are actually quite risky! - Finally there is some argument to be made that bonds are better investments when monitoring technology is poor -- since insiders can steal equityholders' wealth. But the 20th century invented good accounting, auditing, etc to reduce that and drive up equity returns.
- dot1x 4y ago
  > getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.
  - whall6 4y ago
    There are enough “cash cow” securities that maintain a same / similar share price by distributing heavily for this to make sense. The price wouldn’t show the whole story and the cash could go much further over 100 years than just sitting in a bank account. I don’t know many people that spend 100 years in retirement.
  - Dylan16807 4y ago
    You should be taking money out at your chosen rate, not depending on how those companies choose to allocate money between dividends vs. buybacks vs. cash piles vs. reinvestment. So treating dividends as reinvested by default makes sense to me.

castom 4y ago

[flagged]

recuter 4y ago

If I was alive in 1923 and stashed away $8 million in ̶c̶a̶s̶h̶ (Edit: 100y bonds) would only be worth about $140 million today. Had I put it into some fancy ETF (Recall Vanguard dates back only to 1975, but whatever) I'd be a billionaire. That's it, that is the entire difference of less than an order of magnitude. Don't reckon the nickels and the dimes matter much to centenarians. Most people don't even have $8000 to invest so they plow it all into crypto and beanie babies and we scoff at them trying to x10. Food for thought. Memento Mori. Edit for clarity: I obviously didn't mean stash cash under the mattress. Sorry for the confusion.

jldugger 4y ago
10x matters quite a bit in generational wealth terms. If every generation doubles the number of plausible claimants to the wealth, thats about what is needed to balance out. On the other hand: > If I was alive in 1922 and stashed away $8 million in cash it would only be worth about $140 million today. Why would it not be worth $8 million?
- quickthrowman 4y ago
  It should read “If I was alive in 1923 and invested $8M in 100y bonds that return the exact rate of inflation, I’d have $140M today” Plugging it into a USD inflation calculator checks out.
  - bobleeswagger 4y ago
    $8 million in cash will always be $8 million in cash. "Stashed it away" is pretty vague but cash is cash.
    - tarboreus 4y ago
      Only if you literally mean physical cash. Banks offered pretty significant interest rates historically.
      - 4y ago

antisthenes 4y ago

The reason this kind of analysis is irrelevant is that human civilization has only been exploiting oil since ~ early 1900s. Sure, fossil fuels in the form of coal has been exploited before, but nothing on the scale of coal/gas/oil use that started after the Great Depression and ramped up to peak per capita consumption circa 1970s if memory serves. So you always have to look at that historic period discounting that, and the massive population growth that came with it. Tech advancements are slowing down and so is population growth.

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cmrdporcupine 4y ago
Sure, but it begs the question what happens when fossil fuel exploitation inevitably is curtailed drastically; either early by necessity because of reasonable legislation, or a bit later because of a stronger ecological collapse or depletion. Solar, wind, or whatever Future Tech is unlikely to have the same direct mine->refine->commodity->sell->use cycle on which a lot of this edifice is built. This could be quite relevant for current generations before they retire, but even more so for my children's generation. You can already see the political fallout with various ugly regimes in various petro-states starting to panic. Wait until people's 401Ks start to explode.
- eatsyourtacos 4y ago
  >Wait until people's 401Ks start to explode Maybe we shouldn't have moved to such a completely moronic system them which shifts all the risk to the individual and just "hope" they magically make money on something they have no control over. It all works until it doesn't.
  - cmrdporcupine 4y ago
    Sure, I completely agree with you. No argument there.
  - astrange 4y ago

mooreds 4y ago

You'll want to download the PDF and then scroll to page 43 to see the charts. The previous pages are about methodology, I think, I scrolled past them to see the pretty pictures. Interesting look at truly long term results from the US stock market and bond market. Back ot the 1850s. Also looks at when stocks and bonds lagged "the average" or performed poorly for decades. I guess my question is: where else are you going to go to invest your savings? Maybe real estate (but it can be a lot of work), maybe cash (but you can lose a lot to inflation)? Government pension or annuities can be an option, but then you're essentially giving up some upside and pushing the same decisions onto another person (though they have more options, since they have much more money). Just another argument for a diversified portfolio, rebalanced regularly.

autokad 4y ago
two trends have me highly concerned: 1) the baby boomers are now starting to retire in large numbers and they will go from investing and lending to consuming, selling stocks, etc. 2) population decline is a thing. many countries have already started the downward trend, and most of the world will be declining by 2050. this puts a huge ? on all asset classes. Some other points about stocks, their 10% returns was done by many studies that looked at performance between 1952 and 1999 (just after the great depression ended and just before the dotcom bust). almost all asset classes over that 20 year period (1999-2019) out performed stocks, including gold and oil.

Kon-Peki 4y ago

The reason all the stock market charts you see start in 1926 is because they come from CRSP data, which starts in 1926. If you are a student at a university almost anywhere in the world that offers an MBA or other advanced degree in business or finance, it subscribes to the CRSP data service with 95+% probability. If you are an engineering or a CS student, the university contract covers you! You'll probably have to talk to someone over at the business school, but they'll get you access for all your ML research needs! The main advantage over other data providers is that they publish their methodology and formulas, and have a full-time staff dedicated to data quality. Oh, and they're cheaper than everyone else (it's a service run by the University of Chicago instead of a for-profit corporation), so it has become the default academic data source. If you publish research using some other data, colleagues will want to know why.

q845712 4y ago
just a nit, but especially given the economics outlook advanced by and named for the U of C, the line between the University of Chicago and a for-profit corporation is both thin fuzzy.
- Kon-Peki 4y ago
  Haha :) By the way, the story goes that back in 1960, one of the big Wall Street firms wanted to know whether, since the depression, it was better to invest in big companies or little companies. They asked all the universities in and around NYC, who all told them that nobody knew. One of the executives was a U of C grad and asked them one day when he was in Chicago. They said that they had no idea but that if they gave them money they’d find out. When they published the study, everyone started calling and asking for access to the data, and thus the entire field of academic financial research was born :) The study was done on a univac 2 and it blew people’s minds that such quantities of data could be analyzed in one go.

b33j0r 4y ago

My primary criticism is that it took me several minutes to see a chart. The exposition is very interesting. I don't judge a paper by its cover, but it kinda took a lot of work to read something that was described as visual! Is there a nuance to this publishing process that makes this make sense?

rwmj 4y ago
He really needs to read Edward Tufte! (Even plain Latex tries to put the figures near to the text.)
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bumby 4y ago
>Is there a nuance to this publishing process that makes this make sense? This can sometimes be an artifact of submitting for peer review where tables and figures are uploaded as separate documents than the manuscript and then combined into a single document. I think this makes it easier to format the tables and figures for a journal.

roussanoff 4y ago

A paper on a similar topic but with much better execution: The Rate of Return on Everything, 1870–2015, https://economics.harvard.edu/files/economics/files/ms28533.pdf https://economics.harvard.edu/files/economics/files/ms28533..... Among other things, it spans multiple countries, and includes housing in the comparison.

dot1x 4y ago
Would be great if you explained how's it better or if it reaches different conclusions.
nonethewiser 4y ago
Interesting. Yet so broad that it really can't inform an individual's expectations for their returns.
mrep 4y ago
Hacker news discussion on it 4 years ago: https://news.ycombinator.com/item?id=19817584 https://news.ycombinator.com/item?id=19817584
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aj7 4y ago

"The market can remain irrational longer than you can remain solvent."

Aachen 4y ago
That's why one is advised not to invest what one cannot miss
- anyfoo 4y ago
  But then what? Put it into a money market account where it gets eaten up by inflation?
  - Aachen 4y ago
    More like a bank account falling under the deposit insurance. Don't gamble with money you can't do without, is what I was trying to convey. If you mean for a pension (assuming there is no state-supplied minimum pension that you could live from if necessary), get a pension plan where it stipulates how much you'll get per month rather than something where you depend directly on the market's daily whims. Very wide-spread ETFs are an exception due to their track record: if you are rich enough that you could survive a 15-year market recession then those are an option as well.
    - anyfoo 4y ago
      > Don't gamble with money you can't do without, is what I was trying to convey. That's fair, but my point was that retirements saving are money one "cannot miss" (as in the original comment) or "can't do without". And yet I think it has to be invested, for example in the options you listed, because keeping it in a bank account will only expose it to inflation, and hurt your retirement.

coliveira 4y ago

Until the beginning of the 20th century, stocks were viewed as a purely speculative investment. The idea that buy and hold will provide great returns is a modern one and is supported by the growth of the stock market in the 20th century. There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding companies for a long period of time.

martincmartin 4y ago
> There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding companies for a long period of time. That's certainly true in marketing material of fund managers. But it's not true in honest academic papers, like this one. There's lots of data out that about total returns of the stock market, that takes into account dividends and survivorship bias.
bumby 4y ago
Do you happen to know where to find historical data on such holdings? For example, how do I find the historical ETF holdings at a particular point in time?
- Kon-Peki 4y ago
  ETFs? Welllllll, how about mutual funds instead? A lot of ETFs are just exchange-traded mutual funds. Mutual funds are required to periodically report their holdings: https://www.sec.gov/edgar/sec-api-documentation https://www.sec.gov/edgar/sec-api-documentation Rate limit yourself to under 10 requests per second, and put contact info into your user-agent if you'd like them to contact you about problems. > The APIs are updated in real-time as filings are disseminated. The submissions API is updated with a typical processing delay of less than a second; the xbrl APIs are updated with a typical processing delay of under a minute. However these processing delays may be longer during peak filing times.
  - bumby 4y ago

compumike 4y ago

Figures 6 and 9 look a lot like https://totalrealreturns.com/ https://totalrealreturns.com/ , especially with the trendlines on these figures, logarithmic y-axis, (disclosure: my side project, recomputed daily at market close) It would be cool to merge in some longer-term historical data as the article author has done, instead of just using actually-tradable assets like I've done. Per the article, the author considers these charts "misleading": > Charts such as Figure 9, with their accompanying commentary, and combined with the distinctive behavior of the product function, may lead investors to mis-anchor their expectations about the future performance of bond and stock investments. Faced with a yawning visual gap, and apprised of the numerical dominance of stock returns (in Siegel 2014, estimated at 6.6% real versus 3.6% for bonds), an investor readily infers that bonds are never going to out-perform stocks over any lengthy period. I'm not sure I agree with the conclusion. A log scale hides a lot of volatility, but it's still fairly obvious that the stocks line has a lot more volatility, prolonged periods of substantial drowdowns (painful!)... As another commenter points out, this article's use of price-only data (even if adjusted for inflation) is intellectually dishonest, ignoring returns from dividends. And yes, your typical price-only, non-inflation-adjusted charts from Yahoo Finance / Google Finance / Apple Stocks should probably be considered intellectually dishonest, or at least confusing, in my opinion...

insonable 4y ago
Yahoo uses the CRSP method (see: factor to adjust price) to back-adjust old prices when dividends and splits occur, so it's not as misleading as you're probably thinking. I'd be surprised if the others didn't do something like this too.
- compumike 4y ago
  Yahoo does have this “Adjusted Close” column available in their historical data downloads, but they do not use it for charts. Their charts are price-only. Same with Google Finance and Apple Stocks.
  - NovemberWhiskey 4y ago

nostromo 4y ago

The Titanic was built a bit over 100 years ago for 1.5m pounds -- today that'd buy you a nice London two-bedroom apartment. I wonder if in 100 years from now, people will casually be talking about their nice (but modest) London two-bedroom apartment they bought for 100m pounds.

acdha 4y ago
Of course, if you convert that to current value that’s something like £235M at current rates, which seems more plausible (and would have been more like £400M without the self-inflicted damage of Brexit). New cruise ships cost more but they’re also larger and have more amenities, and holding so many more passengers means more expenses for things like furnishings.
nly 4y ago
Peoples perceptions of number sizes don't change quickly. 1 million will still seem like a big number. It's likely at some point we'll have to re-denominate. There will be a 'new Pound' or something that is worth 100 'old Pounds'. You can see the number phenomenon today. People still talk about "winning £1M on the Lottery" like it'd set them up for a life of luxury. To reasonably replace even a median UK full-time salary for life you're going to need around ~£700K in assets. That leaves £300K for a modest home somewhere outside of London and the South East. One false move with your £1M winnings and you'll end up back in the office. The £ is worth half of what it was in 1994 when the Lottery started.
- duderific 4y ago
  Or we can make 100 trillion pound notes like in Zimbabwe https://www.cnn.com/2016/05/06/africa/zimbabwe-trillion-dollar-note/index.html https://www.cnn.com/2016/05/06/africa/zimbabwe-trillion-doll...
  - baby 4y ago
    Or japan. In romania people still say “one million” instead of “one hundred”
  - 4y ago

sleton38234234 4y ago

I have a theory. The last 100 years has seen govt spending as percent of gdp increase to ever greater levels. People are expecting more and more handouts and no one wants to pay for it. Without the ability to pay for it via taxes, the govt will eventually have to default on it's currency and thus real returns on fixed income/bonds will have to become increasingly negative. Their article already shows a slight widening between bonds/equities post 1950. My theorey is that for the next 100 years, we'll see a much larger widening between the returns of bonds and equities as more and more governments default on their currency. Thoughts? EDIT: the article I referenced was the one the other poster mentioned: https://economics.harvard.edu/files/economics/files/ms28533.pdf https://economics.harvard.edu/files/economics/files/ms28533.... Also, equity returns should in the long term be equal to Producivity per capita + population growth + inflation + dividends. And If you look at each of those for the last 100 years and the next 100 years for the US, you'll see a pattern. Pop growth down to 0.4 from 1.3. Per capita growth down several percent in the last 20 years vs the 100 years before that and with current PEs where they are, dividends are down to 1.3% from a historical 4.5%. Translation: Future equity returns will be much much closer to inflation than they have been in the past.

smaddox 4y ago
Private debt dwarfed public debt until very recently, and it's still significany higher: https://braveneweurope.com/steve-keen-what-is-the-role-of-public-debt-and-private-debt-in-the-next-great-financial-crisis https://braveneweurope.com/steve-keen-what-is-the-role-of-pu... Also GDP is a terrible proxy for economic prosperity. A broken window adds to GDP, but subtracts from prosperity. If we had a better proxy for prosperity, it would be easier to see if government debt was actually net negative or net positive effect. As is, all arguments one way or the other are speculation and ideology.
- xyzzy123 4y ago
  I think prosperity (particularly if we include health, education, wellbeing etc) is unfortunately very difficult to measure and any attempt necessarily incorporates a lot of speculation and ideology. A forest cleared creates wealth & prosperity, but what was the value of the forest that was lost? What value do we put on natural amenity, biodiversity, a pristine environment? An employee works very long hours, numbers go up. Great. In specific situations though we can ask: was any wealth actually created, or was the wellbeing of the employee and their children simply exchanged for dollars? etc. It's value judgements all the way down.

worik 4y ago

For modern computing/finance type of people (I was but now have reformed) the lack of financial data is a problem. Even if you can get access to every trade, which is hard, the amount of data is not what modern machine learning types require. Thr EMH is a hard mistress too. There is no amount of data that can help you solve unsolvable equations. So alot fall into this trap, synthetic data. Some of the best statisticians on the planet have. It is so tempting to believe that there is money to be made by being cleaver trader I markets. General, there is not. Buy and hold is not a shibolith it is a strategy. It is the only strategy that can be replicated. Synthesizing data to disprove buy and hold is wishful thinking. Data snooping.

yold__ 4y ago
Have you heard of Citadel?
krembanan 4y ago
The Medallion Fund by Renaissance Technologies has had an average annual return of 71.8% from 1994-2014.
- ryeights 4y ago
  What is not known, however, is if those returns were achieved through legal means…
  - robbintt 4y ago
    Are you referring to the tax evasion? I think they paid a slap on the wrist. Otherwise I am interested.
    - 314 4y ago
      Bernie Madoff promised high returns while obfuscating his business model as well. It went well until it no longer did.
  - chii 4y ago

moloch-hai 4y ago

Off-topic... I was looking up NRGV, the fraudulent energy storage company (the one with concrete blocks and cranes) which hit $2.4B last year and then fell to a sixth that, before drifting up a bit. According to analysts, if I read the summary right, it should be considered worth $1B, short-term, and $0, long term. Last I checked it had $90M in cash, down from $100M a few weeks ago. Now, with $90M they could buy an actually viable energy storage technology to (most likely) run into the ground. What are these analysts thinking, recommending BUY of a fraudulent company with no better prospects than your average fusion start-up or Hyperloop, and already trading at several times its objective value? Is it a judgment about where ignorant investors will take a no-future company that has been well-hyped, a la Tesla? And, could they be right?

TylerE 4y ago
The actual rating doesn’t really matter, it’s the changes that do. Strong from a previous “strong buy” is very different than a strong from a previous of “hold” or even “sell”.
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devops000 4y ago

It’s very common nowadays to see people suggest investing into S&P500 ETFs and keep them forever. More then 20% of US population owns stocks. I think we are near a change into this paradigm.

snow_mac 4y ago
What alternative would you suggest?
- devops000 4y ago
  Picking stocks only if they are likely to perform better in the future instead of only because they belong to US market. Aka value investing. Or alternatively, have a basic macroeconomic understanding knowing when enter/exit the market. This might not let you pick up the top/bottom but at least is more intelligent than "staying in the market because it was always trending up".
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zitterbewegung 4y ago
What is your suggestion to do instead? Owning a non index fund will have a fee of at least 1% Putting it under your mattress makes you lose from inflation. I'm not sure doing 60 / 40 stocks and bonds could be another solution.
- Invictus0 4y ago
  Think about your investments intelligently instead of looking for a guaranteed sinecure.
  - moneywoes 4y ago
    Day trading?
  - astrange 4y ago

jorblumesea 4y ago

How is data before 1950 even relevant in today's investing world? Between MMT, finanicialization of the economy, stock buy backs, Bretton Woods, tax codes, robo investing and indexing... Interesting stuff but really not super helpful in assessing risk.

MuffinFlavored 4y ago
it seems impossible to assess risk of current environment based on history i wonder if that’s been perpetually true for all of history?
kqr 4y ago
I think this sort of retrospective is more about informing people of the possible range of outcomes under various market conditions, rather than claiming to know exact probabilities of specific outcomes.

georgeecollins 4y ago

One of the charts you don't see is the performance of the stock market from say 1900-1950 for countries like Russia, Japan, France or Germany. We have this point of view that the US is a good place to invest, but to an investor in 1900 that might not have been such an obvious choice. Looking back 50 years from now it may seem like it was obvious the US was going to collapse from some political issue and clear that you belong in the stock market of Brazil, Indonesia, or I don't know what.

throwaway77770 4y ago
Wouldn't the stock market chart for Russia have a rather sudden stop around 1917?
dragonwriter 4y ago
> One of the charts you don't see is the performance of the stock market from say 1900-1950 for countries like Russia The St. Petersberg Stock Exchange closed in 1914, reopened briefly for a short period in 1917, and then did not reopen thereafter. But a comparison of it to the US between 1864 and 1914 is available: https://www.investmentoffice.com/Observations/Markets_in_History/The_Russian_Stock_Market_Before_the_Revolution.html https://www.investmentoffice.com/Observations/Markets_in_His...
- georgeecollins 4y ago
  That's my point. No one knew the St Petersberg stock exchange would close in 1914. The US stock exchange could close in 2044 and no one would be expecting it. 50 year predictions are unreliable.
bagacrap 4y ago
Which is why you're supposed to buy all world indexes like VT. If that doesn't work, it's likely nothing will have (besides gold and ammo).

tiffanyh 4y ago

Geometric mean I’m surprised to see no mention of geometric mean. People far too often incorrectly use Arithmetic Mean (“average”), which doesn’t compute correctly due to the compounding nature of the stock market. https://www.investopedia.com/articles/investing/071113/breaking-down-geometric-mean.asp https://www.investopedia.com/articles/investing/071113/break...

Galanwe 4y ago
I don't see how that relates to the article?
- tiffanyh 4y ago
  The graphs are about long term returns. And how are those returns calculated? Because if they used arthritic mean, it’s overstating the actual annualized return.
  - Galanwe 4y ago
    Two things to note here. First, it does not "overstate" the annualized returns. It just brings a particular view of them, which is the "expected annual return" vs the "compoundable annual return". Both are perfectly equivalent and represent different ways to look at annual returns. I would expect most practitioners to expect the former. Second, this debate is completely irrevant here, as all charts show cumulative returns based on a $1 investment.
kqr 4y ago
It looks like they based it on the arithmetic mean of log-returns, which is equivalent to taking the geometric mean.
314 4y ago
One of the main discussions in the paper is about the difference between arithmetic means and geometric means, and how people have different perceptions of annualized returns. Perhaps you should read it (again)?

paulpauper 4y ago

Historical economists have done this going as far back as the 1600s. It can be tracked with records. Records in in the Netherlands are known to be meticulous.

xivzgrev 4y ago

This is an interesting analysis, but leaves out a big point: the structural evolution of markets over time Back in 19th century, accounting standards weren’t as strict, information was not as widely available, and central banks didn’t exist. It was the Wild West so no wonder you had bubbles and long periods of draw downs Today the US fed would quickly intervene to turn markets around. When Japan crashed in late 80s, they didn’t know QE was the answer so they struggled for a decade. When the US crashed for similar reasons in 2008, they knew QE would help and jumped on it. The stock market was back on track in a freaking year. It didn’t recover to the heights but it was trending on right direction. To believe we would have similar long draw downs like the 19th century, you’d have to believe that something structural would change where current valuations would decrease: a shrinking economy (very unlikely), or capital flight elsewhere (also very unlikely given US track record). The US economy has a lot of advantages and I’m having a hard time seeing a long term bear case for it

kccqzy 4y ago
Furthermore, the perception of the stock market has also evolved greatly since the 19th century. To first approximation, the more people believe in buy-and-hold, the more money gets invested, the more the stock market goes up. It's like a self-fulfilling prophecy.
trompetenaccoun 4y ago
The Japanese market crashed precisely because of excessive government intervention, not a lack thereof. It was heavily manipulated by Japan's own central bank, which worked well initially, but they were eventually pressured into liberalizing by the US and it went downhill from there. Sure, one could argue they should have doubled down and they probably could have kept it going for another decade or two. Eventually though these systems always collapse, planned economies do not work. Look into the term "window guidance" to learn more about what they were doing. The US isn't doing anything on the scale Japan was doing but it's still less of a free market than it used to be. Keep in mind also that the US doesn't exist in empty space, the factories where American products are made are located in places like China and there are heavy financial links to this country that follows the exact strategy Japan had, with even more centralization and state ownership actually. This is also part of the US economy now, you can't just ignore that. It's a risk for the US economy, even some of the elites that heavily invested admit this now. Take Soros as a very late example.

bionsystem 4y ago

I read a few books on early 20th century finance and trading last years, some stories are quite fascinating to say the least. I really like this period of time, everything both in the economy and finance / stocks was quite reckless, it still is today of course but it was on a whole other level with bucket shops, insider trading, fake tips, etc. This work is interesting because few people were really doing charts at the time. Prices were recorded as quotes (price+volume) on a "tape" and most people would just read numbers. "Indices" would barely exist and people would construct their own with a poor understanding of how to weight companies in an average (most averages were weighted by stock prices, instead of market capitalisation). And people would talk in $ moves a lot instead of %, meaning that for a lot of people gaining $1 on a $30 stock would be the same as gaining $1 on a $100 stock.

baby 4y ago
Damn. I’m wondering if crypto could follow a similar path, especially with ICOs.

daddylongstroke 4y ago

Amazing: a giant (and informative) thread on markets, investing, and value with many asking the same question - "but what else are you going to invest in?" - and not a single mention of building soil, and in turn health, or even "goats"...and I heavily expected goats to be at least mentioned.