6 ms·

Historically stocks that had a good run then tended to underperform: > […] Since 1926, the median ten-year return on individual U.S. stocks relative to the bro

Historically stocks that had a good run then tended to underperform: > […] Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122

M3L0NM4N 3mo ago
I mean these stocks have been performers for decades. If you posted this 10 years ago you'd look really wrong.
- Lerc 3mo ago
  Yes, but when their run ends they tend to underperform. Every time.
  - nvme0n1p1 3mo ago
    If a stock market observation has no predictive power, then it's worthless. I look forward to your weather report too: "It's always sunny outside until one day it starts raining. Every time."
    - deleted 3mo ago
      [deleted]
    - andrewstuart2 3mo ago
      Off topic, but I love your username.
      - tjwebbnorfolk 3mo ago
        hey he hacked my computer his user has a home folder inside of /dev
    - tjwebbnorfolk 3mo ago
      ye, the stock market isn't magic, it's just a collection of what people think. and people can be very wrong in a big way.
    - deleted 3mo ago
      [deleted]
    - nradov 3mo ago
      Buddy I think you missed the joke.
    - EA-3167 3mo ago
      Not at all, if someone tells me that "This stock is historically likely to regress to and beyond the mean," it's information I can use to evaluate my risk tolerance. Just because a piece of information doesn't let you time the market like a psychic doesn't make it worthless, it's just not what you were looking for.
    - throw0101d 3mo ago
      > I look forward to your weather report too: "It's always sunny outside until one day it starts raining. Every time." I once ran across the comment that if you simply predict tomorrow's weather will be the same as today's you'd be correct 80% of the time. Not sure how true that is (can't find the source). Allegedly momentum investing does pretty well: * https://en.wikipedia.org/wiki/Momentum_investing https://en.wikipedia.org/wiki/Momentum_investing (I'm more of an index guy myself.)
      - variadix 3mo ago
        There are momentum indices. Momentum is actually a strange phenomenon from the perspective of the efficient market hypothesis because it does not have an obvious risk to balance its premium compared to other empirical factors.
  - deleted 3mo ago
    [deleted]
  - ertgbnm 3mo ago
    Once you lose, you have lost. Ok, but how does that help us predict when something will lose?
    - nradov 3mo ago
      Yes, it is predictive. But only retroactively.
  - ohyes 3mo ago
    “When the stocks don’t go up they don’t match the market which generally goes up”
  - eternal_braid 3mo ago
    Many people who replied to you seem to have missed your joke. I appreciated it.
    - Lerc 3mo ago
      It is my curse. Years ago, My daughter's science teacher said that school should teach a love of learning. I replied 'I thought the point of school was to make productive worker units in society' And while he explained to me why I was wrong I was thinking to myself 'great, now he thinks I'm a terrible person' It seems I deadpan too effectively.
      - rightbyte 3mo ago
        Poe's law apply to real life too.
      - bluGill 3mo ago
        Productive workers in society need to learn new things all the time. I can't think of any career that hasn't changed in my life. I recall a garbage man (sexism probably wasn't required even then, but I never recall females) hanging off the back of the truck while the driver drove to the next house - the driver today needs to know how to operate the arm on the truck that lifts my can. Fast food used to be cooked within 10 minutes of when it was thrown, now they obviously are keeping things warm for a lot longer.
  - c22 3mo ago
    Sometimes people bring me things that are broken 'cause I like to fix stuff. They always say "it was just working!"
  - pkilgore 3mo ago
    well I laughed
  - davedx 3mo ago
    Tautologies 'R us
  - nkmnz 3mo ago
    Predictions are difficult, especially about the future.
  - fittingopposite 3mo ago
    That's a nice tautology
- throw0101d 3mo ago
  > I mean these stocks have been performers for decades. If you posted this 10 years ago you'd look really wrong. And Japan performed ridiculously well for over decades and then stagnated for decades after that, but it averaged out between the two periods: > Ben Carlson: It's just a really long mean reversion. You got like 22% per year from 1970 to 1989 in Japan. Small caps in Japan did 30% per year for two decades. > It's insane. The returns almost had to be poor after that. If you put them together, the boom with the bust, it's like almost 9% per year. > It's kind of crazy. Over 50 years, the long-term worked. It's just that over that 20 or 30-year period, it didn't work so well. * https://rationalreminder.ca/podcast/412 https://rationalreminder.ca/podcast/412 (~4m20s) Annualized 9% per year is pretty good: the S&P 500 has average 10% since 1957 (70 years). Is there anything preventing US equities from doing the same thing: great performance from 2010 until now, and then 10+ years of stagnation starting (theoretically) tomorrow. If you look at 2000s S&P 500 you got zero returns, and the only thing that would have saved a US domestic (only) investor was having a bond allocation: * https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/ https://www.forbes.com/sites/advisor/2010/09/13/its-not-real... This is why diversification is important. People talk about "US stocks" doing well, but have US industrials done better than non-US industrials? US finances or energy done better than non-US? Or are "US stocks" doing better simply because tech stocks specifically have done better? Perhaps a US allocation is really a tech sector play: * https://ofdollarsanddata.com/should-your-portfolio-be-100-us-stocks/ https://ofdollarsanddata.com/should-your-portfolio-be-100-us...
  - M3L0NM4N 3mo ago
    IMO, it's an argument against diversification. The Nikkei's decade-long stagnation is proof that the indices that are widely considered "diverse" are not immune to stagnation. This is from a trader/investor's standpoint. Of course, the S&P can return 0% in a few year timeline, but the American economy would really have to stall to return 0% over a 10+ year time horizon. This might shock the Kevin O'Learys and Dave Ramseys of the world, but picking stocks that outperform in any macro environment is easy, you just have to have the stomach for vol and continuously invest.
dheera 3mo ago
> Historically stocks that had a good run then tended to underperform This is more of a mathematical axiom than a financial effect, because you're defining "underperform/overperform" with respect to an average that contains them.
- gruez 3mo ago
  >> Historically stocks that had a good run then tended to underperform >because you're defining "underperform/overperform" with respect to an average that contains them. Why is this true? For instance, if you're comparing the GDP growth of countries in the G7, why is it that one country (eg. US) can't consistently overperform year after year? https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~CAN~FRA~DEU~ITA~GBR~OWID_EU27&mapSelect=~USA https://ourworldindata.org/grapher/gdp-per-capita-worldbank?... Or if you want make it even more clear, you can construct a index consisting of two countries: a normal country (eg. US) and a basketcase (eg. DRC): https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~COG&mapSelect=~USA https://ourworldindata.org/grapher/gdp-per-capita-worldbank?...
  - antoinealb 3mo ago
    Shouldn't you look at the YoY change instead, to compare to stock returns ? Otherwise that's like comparing market cap, and then it is obvious that a big company tends to stay big.
    - gruez 3mo ago
      >Shouldn't you look at the YoY change instead, to compare to stock returns ? This might work for the G7 case[1], but not the US vs DRC case, where it's an obvious case of sloping up vs sloping down. Granted, the case is contrived, but the original claim was that it was an "mathematical axiom", so it should still hold. [1] though even in the G7 sample, you can find counterexamples. If you switch to "relative growth" you can clearly see that italy has lagging since the mid 2000s, with no accompanying faster-than-average growth to make up for it. If the claim is that "Historically stocks that had a good run then tended to underperform", then surely the opposite must also hold?
energy123 3mo ago
It's interesting, but the usual disclaimers apply with factor research - Does it replicate internationally? - Is it explained by another phenomenon such as the beta anomaly or small cap premium. Implication: large caps with high beta are already known to underperform, so this this isn't a new regularity.

M3L0NM4N 3mo ago

I mean these stocks have been performers for decades. If you posted this 10 years ago you'd look really wrong.

Lerc 3mo ago
Yes, but when their run ends they tend to underperform. Every time.
- nvme0n1p1 3mo ago
  If a stock market observation has no predictive power, then it's worthless. I look forward to your weather report too: "It's always sunny outside until one day it starts raining. Every time."
  - deleted 3mo ago
    [deleted]
  - andrewstuart2 3mo ago
    Off topic, but I love your username.
    - tjwebbnorfolk 3mo ago
      hey he hacked my computer his user has a home folder inside of /dev
  - tjwebbnorfolk 3mo ago
    ye, the stock market isn't magic, it's just a collection of what people think. and people can be very wrong in a big way.
  - deleted 3mo ago
    [deleted]
  - nradov 3mo ago
    Buddy I think you missed the joke.
  - EA-3167 3mo ago
    Not at all, if someone tells me that "This stock is historically likely to regress to and beyond the mean," it's information I can use to evaluate my risk tolerance. Just because a piece of information doesn't let you time the market like a psychic doesn't make it worthless, it's just not what you were looking for.
  - throw0101d 3mo ago
    > I look forward to your weather report too: "It's always sunny outside until one day it starts raining. Every time." I once ran across the comment that if you simply predict tomorrow's weather will be the same as today's you'd be correct 80% of the time. Not sure how true that is (can't find the source). Allegedly momentum investing does pretty well: * https://en.wikipedia.org/wiki/Momentum_investing https://en.wikipedia.org/wiki/Momentum_investing (I'm more of an index guy myself.)
    - variadix 3mo ago
      There are momentum indices. Momentum is actually a strange phenomenon from the perspective of the efficient market hypothesis because it does not have an obvious risk to balance its premium compared to other empirical factors.
- deleted 3mo ago
  [deleted]
- ertgbnm 3mo ago
  Once you lose, you have lost. Ok, but how does that help us predict when something will lose?
  - nradov 3mo ago
    Yes, it is predictive. But only retroactively.
- ohyes 3mo ago
  “When the stocks don’t go up they don’t match the market which generally goes up”
- eternal_braid 3mo ago
  Many people who replied to you seem to have missed your joke. I appreciated it.
  - Lerc 3mo ago
    It is my curse. Years ago, My daughter's science teacher said that school should teach a love of learning. I replied 'I thought the point of school was to make productive worker units in society' And while he explained to me why I was wrong I was thinking to myself 'great, now he thinks I'm a terrible person' It seems I deadpan too effectively.
    - rightbyte 3mo ago
      Poe's law apply to real life too.
    - bluGill 3mo ago
      Productive workers in society need to learn new things all the time. I can't think of any career that hasn't changed in my life. I recall a garbage man (sexism probably wasn't required even then, but I never recall females) hanging off the back of the truck while the driver drove to the next house - the driver today needs to know how to operate the arm on the truck that lifts my can. Fast food used to be cooked within 10 minutes of when it was thrown, now they obviously are keeping things warm for a lot longer.
- c22 3mo ago
  Sometimes people bring me things that are broken 'cause I like to fix stuff. They always say "it was just working!"
- pkilgore 3mo ago
  well I laughed
- davedx 3mo ago
  Tautologies 'R us
- nkmnz 3mo ago
  Predictions are difficult, especially about the future.
- fittingopposite 3mo ago
  That's a nice tautology
throw0101d 3mo ago
> I mean these stocks have been performers for decades. If you posted this 10 years ago you'd look really wrong. And Japan performed ridiculously well for over decades and then stagnated for decades after that, but it averaged out between the two periods: > Ben Carlson: It's just a really long mean reversion. You got like 22% per year from 1970 to 1989 in Japan. Small caps in Japan did 30% per year for two decades. > It's insane. The returns almost had to be poor after that. If you put them together, the boom with the bust, it's like almost 9% per year. > It's kind of crazy. Over 50 years, the long-term worked. It's just that over that 20 or 30-year period, it didn't work so well. * https://rationalreminder.ca/podcast/412 https://rationalreminder.ca/podcast/412 (~4m20s) Annualized 9% per year is pretty good: the S&P 500 has average 10% since 1957 (70 years). Is there anything preventing US equities from doing the same thing: great performance from 2010 until now, and then 10+ years of stagnation starting (theoretically) tomorrow. If you look at 2000s S&P 500 you got zero returns, and the only thing that would have saved a US domestic (only) investor was having a bond allocation: * https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/ https://www.forbes.com/sites/advisor/2010/09/13/its-not-real... This is why diversification is important. People talk about "US stocks" doing well, but have US industrials done better than non-US industrials? US finances or energy done better than non-US? Or are "US stocks" doing better simply because tech stocks specifically have done better? Perhaps a US allocation is really a tech sector play: * https://ofdollarsanddata.com/should-your-portfolio-be-100-us-stocks/ https://ofdollarsanddata.com/should-your-portfolio-be-100-us...
- M3L0NM4N 3mo ago
  IMO, it's an argument against diversification. The Nikkei's decade-long stagnation is proof that the indices that are widely considered "diverse" are not immune to stagnation. This is from a trader/investor's standpoint. Of course, the S&P can return 0% in a few year timeline, but the American economy would really have to stall to return 0% over a 10+ year time horizon. This might shock the Kevin O'Learys and Dave Ramseys of the world, but picking stocks that outperform in any macro environment is easy, you just have to have the stomach for vol and continuously invest.

dheera 3mo ago

> Historically stocks that had a good run then tended to underperform This is more of a mathematical axiom than a financial effect, because you're defining "underperform/overperform" with respect to an average that contains them.

gruez 3mo ago
>> Historically stocks that had a good run then tended to underperform >because you're defining "underperform/overperform" with respect to an average that contains them. Why is this true? For instance, if you're comparing the GDP growth of countries in the G7, why is it that one country (eg. US) can't consistently overperform year after year? https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~CAN~FRA~DEU~ITA~GBR~OWID_EU27&mapSelect=~USA https://ourworldindata.org/grapher/gdp-per-capita-worldbank?... Or if you want make it even more clear, you can construct a index consisting of two countries: a normal country (eg. US) and a basketcase (eg. DRC): https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~COG&mapSelect=~USA https://ourworldindata.org/grapher/gdp-per-capita-worldbank?...
- antoinealb 3mo ago
  Shouldn't you look at the YoY change instead, to compare to stock returns ? Otherwise that's like comparing market cap, and then it is obvious that a big company tends to stay big.
  - gruez 3mo ago
    >Shouldn't you look at the YoY change instead, to compare to stock returns ? This might work for the G7 case[1], but not the US vs DRC case, where it's an obvious case of sloping up vs sloping down. Granted, the case is contrived, but the original claim was that it was an "mathematical axiom", so it should still hold. [1] though even in the G7 sample, you can find counterexamples. If you switch to "relative growth" you can clearly see that italy has lagging since the mid 2000s, with no accompanying faster-than-average growth to make up for it. If the claim is that "Historically stocks that had a good run then tended to underperform", then surely the opposite must also hold?

energy123 3mo ago

It's interesting, but the usual disclaimers apply with factor research - Does it replicate internationally? - Is it explained by another phenomenon such as the beta anomaly or small cap premium. Implication: large caps with high beta are already known to underperform, so this this isn't a new regularity.