Stock market charts you never saw (2021)
papers.ssrn.comFigures 6 and 9 look a lot like 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...
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.
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.
Definitely not seeing Alphabet's 20:1 split in July 2022 when I glance at Yahoo Finance charts - you sure about that? Or are you saying they're adjusted for some corporate actions but not for others?
EDIT: OK, I see there's a note that close is split-adjusted but not dividend-adjusted.
That’s correct: their charts are split-adjusted but that’s all.
Dividend adjustment wouldn't really matter in this study. The price discount at dividend ex date should match the price increase post earnings announcements, so it's netted and disappears once you compute >=quarterly returns.
This is not correct.
The price increase at earnings announcements is (to a first order approximation) indicative of the extent to which the company's earnings exceeded the market's expectations. It's as likely to be positive as negative. Otherwise you could buy the company's stock the day before the earnings announcement and get yourself some free money.
I use TradingView for most of my charting and at the bottom right side there's a button labeled "adj". Clicking it will toggle whether the chart you're viewing is dividend adjusted or not. Very convenient for quick off the cuff comparisons of returns.
Using SPY I can easily see the non adjusted returns from the bottom of the GFC to the top in 2021/2022 were a little over 600% but then accounting for dividends see it's actually a bit over 800%.
For SPY, from 2009-03-09 to 2022-01-03, I get +588.5% total real return, +16.24%/year, after adjusting for dividends and inflation:
https://totalrealreturns.com/s/SPY?start=2009-03-09&end=2022...
I'm pretty sure Tradingview doesn't take inflation into account.
Revised follow-up paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
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.
The 3rd one is interesting and something I hadn't considered as much before — may be applicable still in less regulated markets
Removing dividend does make sense because dividends are taxed. You cannot reinvest all dividends, unless you're using a tax advantaged account.
This might justify discounting dividends (eg reducing them by 20%), but not removing them entirely.
Moreover the more modern approach is share repurchases, which are largely not subject to the tax drag and use the same money that was used historically for dividends.
It is worth noting that until 1982, stock buybacks were illegal—deemed as market manipulation
It is still market manipulation, but made legal by the US gov, like other crimes such as lobbying.
And since a few years ago they are highly taxed in Canada.
So are bond coupons, and (within the current regime) at a disadvantageous rate relative to dividends!
Price increases are taxed as well (eventually), do you also remove them?
Stepped-up basis takes care of that. Buy, borrow, die!
Dividends aren't taxed where I am, and it skews our investment, even towards US stocks. I find it interesting to include.
> 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.
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.
Exactly -- dividends and share buybacks are nearly the same, but the original paper stripped out the first.
Dividends aren't enough to cover living expenses.
If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1]
If you want to live solely from dividends, you'll need more than double the capital.
If you want to die with zero [2], it's impossible.
I'd much rather invest in a dividend-accumulating index fund and sell as I please.
[1] - https://www.multpl.com/s-p-500-dividend-yield
[2] - https://www.goodreads.com/book/show/52950915-die-with-zero
It may be hard to imagine, but dividend yields were not always this low [1]. Investopedia has it usually something healthy over 4% up until 1990s it seems. Over that 1926- time frame, dividends are said to have contributed 32% of the total return of S&P 500 [2].
[1] https://www.investopedia.com/articles/markets/071616/history...
[2] https://www.spglobal.com/spdji/en/research/article/a-fundame...
US stocks are arguably overpriced leading to low dividend yields. In emerging markets you easily get 5-7%.
You can absolutely die with zero: buy a life annuity and let someone else worry about the problem.
I think parent is saying that you can't die with zero if you plan to live off dividends. (Because you need to keep owning the stock throwing off the dividends.)
I'd expect a good portion of deaths involve very expensive health care for the last few months or years of life.
Live off dividends, then sell to pay for the healthcare right before you die
In the US.
In most other developed countries a) healthcare is funded by the government (to a first approximation). b) end-of-life healthcare expenditure is considerably lower outside the US.
And Medicare for those 65 and older in the US is funded by the government.
OK sure; same's true of bonds or CDs or any other asset type though no? The point is that "invest in equities with dividend reinvestment until retirement and then buy a life annuity" is a totally viable strategy. That's basically the way pension saving in the UK works historically, for example.
Right. Life annuities may or may not be a good deal. But that's certainly the main way to not be essentially forced to pass on assets. (Modulo real estate you own and are living in.) And, as you say, defined benefit pensions basically work the same way--although, in the US, current ones are fairly uncommon outside public sector--although a lot of people still have them from years past.
Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.
In the UK this is actually the typical pattern for defined-contribution schemes; I haven't looked recently but it used to be the case that you were legally required to buy an annuity with 75% of your tax-deferred retirement savings.
Interesting. I'm not sure how common annuities outside of defined benefit pensions are in the US. My impression is not very.
I've noticed them mostly in the form of charitable trusts (which can offer the benefit of basically shielding large asset gains from taxation). But it doesn't seem to be a widely-used investment strategy in general. Maybe it's more common if someone doesn't have an interest in passing down any money.
You’re not required to any more, but there are heaps of people on annuities there.
I haven’t read anything about it yet but a lot of them must be in pretty awkward straits because most aren’t fully indexed to inflation…
The rules were changed some time ago; also buying an annuity hasn't been worth it for a while.
Seems like you agree returns would be even worse since you'd take out more than the dividend to survive.
Once you start selling off your assets, the """returns""" are worse, but equally so no matter what you invested in. It's better to leave that math out of the situation and look at the returns of the actual assets by themselves. Which includes reinvesting.
If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.
Why would you exclude part of the total return on an investment? It'd be like ignoring the principal value of a bond because you expect to live on the coupon. Cashflows are cashflows.
Because you'd be selling it as you earn it to be able to live on on retirement. In fact, dividends wouldn't even be enough.
but they still exist and can be a large fraction of the value...
> Once you retire, you don't let dividends reinvest. Makes perfect sense.
You don't let interests from bonds reinvest as well then.
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.
It's not a chart of "how much money does Jonny have".
Data is available as a spreadsheet here: https://www.edwardfmcquarrie.com/?p=579
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.
> 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.
Is there a strategy that reliably beats buy and hold? Obviously not or everyone would do it.
And no investment professional worth their salt would advise to buy individual companies to hold for the long term (almost all will go out of business or underperform eventually) so I'm not sure what purpose the survivorship bias comment serves.
Everyone doesn't know how to successfully invest or there wouldn't be so many middle class and poor people. Buying and holding (a broad index tracker) seems like the best strategy for someone who doesn't know about the businesses or can't be bothered to follow the market. It's the most passive strategy.
Imo the mistake most make is they mentally compare it to themselves reading a bit online and then picking stocks based on what they feel will perform well. Of course this can only go wrong. If you're an expert in an area like the first quant traders or someone who understands startups and does angel investing, you can absolutely beat the market and people do it all the time. That's how some people get rich, you can not become truly rich by working a 9-5 office job and buying a few stocks. Unless theoretically you trade the riskiest penny stocks with leverage and magically come out on top every time like some of those WSB guys. I've yet to hear of cases where this works long term. The smartest ones know when they get lucky and stop playing, because that's pure gambling.
There are hedge funds beating markets over and over, some have been macro driven, some are equity driven, some are quant driven... Now of course it's a pareto law, only a handful out of 100 will get all the excess return and the others will stagnate or underperform indices (or even fail completely). But the same goes for building any company, most of them fail and we watch winners in awe.
Most hedge funds in fact DON'T beat the market though. In almost every case you would have been better to buy index funds and hold versus put your money in a hedge fund.
Correct. The true function of a hedge fund is not to beat the market over the long haul, which is generally impossible. The goal is to avoid losing huge amounts of wealth, for people who have way more money than they need. Hence the name --- you put money in there as a hedge against short term losses in equities.
Most hedge funds don't beat the market, and this is widely known. Moreover, from the few that beat the market, some are involved in insider trading and other deceptive practices. From the remaining ones, a good portion can be explained by sheer luck.
I do wonder about using this same analysis to look at various funds' real returns (hedge and otherwise), in addition to the major indices in the study. I'd be curious to look at variance, downside risk during downturns, etc.
I realized that this is what https://totalrealreturns.com/ does. It seems like at least a few mutual funds do beat the market over time, e.g. FPURX: https://totalrealreturns.com/s/USDOLLAR,VTSMX,FPURX,FBGRX
I remember reading this book pointing out that the big hedge funds that would repeatedly beating markets in the past ended up failing hard in recent years. That really nothing beats index funds.
Some people will point to Warren Buffet, but he is not really a "normal" investor. Buffet only invests in a company after he talks directly to management and does a lot of analysis that is not available to normal investors. I consider him to be a legal insider trader.
I agree everyone doesn't know how to invest well. Some people even advise stock picking! :)
But the problem of some people not being rich is not simply because they can't invest well. First, obviously, not everyone can be rich. Second, most people suffer from the problem that they don't save enough, rather than that they don't invest well enough.
Yes, some people do beat the market. Obviously a lot of people are playing the lotto every day, and some win. Do they do it reliably? No. Disabuse yourself of the notion that beating the market is ever anything other than luck.
Momentum strategies have done better over long term[0]. Maybe someone else can contribute literature that is more trustworthy than BI
Also investing in Index is Momentum strategy disguised as buy and hold since Index will rebalance periodically to add growing companies and remove the lagging ones.
[0] https://www.businessinsider.com/momentum-trading-has-beaten-...
Constant fraction rebalanced beats buy and hold in the long run[1], under a wide variety of market conditions, including adversarial ones. The difficulty lies in finding (a) what fractions are appropriate for the assets you want to invest in, and (b) the appropriate rate of rebalancing, accounting for transaction costs.
[1]: I don't have citations at hand, but the papers are reproduced (among many other interesting ones!) in Theory and Practise of the Kelly Capital Growth Investment Criterion.
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?
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
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.
Thanks, this is useful. However, I was specifically looking for information on the SPDR ETFs.
These data exist but in many cases it is expensive to obtain. Even complete historical data for the SP500 is not a trivial thing to find.
(ETF current holdings, I believe, are legally required to be published)
Tangential but why do people always cite the DJ when it only has a dozen handpicked companies? Doesn’t sound like a great metric
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.
> 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.
> 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.
The tax situation also obviously depends on the investors' tax residence. For example in Switzerland, private investors don't have to pay taxes on capital gains. And many countries have a flat tax for dividends and don't consider them income. But then dividends are often additionally taxed at the source, even though you can reclaim it in some cases.
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
> 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?
> since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks.
OK, so strip out inflation to get real rather than nominal returns, and it becomes "stock investment produces almost all its returns in dividends over a long period". Which is .. not that surprising? Because dividends are ultimately why people buy stocks in the first place? The present value of a stock is after all the "net present value" of the expected flow of dividends.
> Because dividends are ultimately why people buy stocks in the first place?
I would disagree, I feel like the mojority of stonk owners think dividends are passe companies, and a real company would reinvest its earnings or buy back stock. I disagree with these people. I think a company that has no intention of paying a dividend is merely an over produced digital collectible.
You disagree that buybacks are more tax efficient than dividends?
> I think a company that has no intention of paying a dividend is merely an over produced digital collectible.
So, Amazon is a NFT?
If Amazon cannot grow, then yes, it's stock price will go down losing you more than you bought the shares for.
Therefore, any shareholders of amazon would look to predict when amazon would stop growing, and sell right before the prices have adjusted.
stock buybacks are more tax efficient than dividends, but I disagree they are remotely the same thing. There is plenty of empirical evidence that a stock buyback does little to the stock price in the long run, and I would much rather have the decision what to do with the money even though its less tax efficient.
An NFT is a good way to put it.
So if Amazon bought back so many shares so that there were just one left on the public market, you think that the last share would trade for $97?
I count stock buybacks as "dividends relabelled for tax purposes".
There's other ways to return capital. Another larger company, or Elon Musk, might buy them.
I think it probably would surprise a lot of people. But you're absolutely right that the Finance 101 argument for how a stock should be valued is the net present value of its dividend stream. Largely fail at the individual firm level of course for various reasons (and is a naive estimate for those many reasons) but it shouldn't be too surprising that it works in aggregate.
> presumes an investor who never needs to spend the dividends or interest received. No real investor, individual or institution, has that luxury.
I don't understand this. It's like saying: I don't have the luxury to sell off some of my growth stock. It makes no sense, you sell when you need money, and you re-invest the dividends unless you need money, same thing.
> price-only returns
Why should I care about price-only returns?
> Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks.
This would imply that the average investor will generate wealth by investing in equities that pay dividends...in other words profitable companies...
Net present value profitable -- it doesn't have to be profitable any particular year.
I was going on to make a comment about how many firms that have IPO'd of late are never been profitable. These firms have not paid any dividends and may never. Yet these firms are hyped up to lure in the retail investor, yet the evidence presented in this paper is that compound growth of dividends is the route to wealth.
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....
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.
Private debt dwarfed public debt until very recently, and it's still significany higher: 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.
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.
As the divide gets more extreme (between GDP per capita numbers and reality), I think we’ll soon have a “Quality of Life” kind of an index.
You can have a high salary in country A, but live in a small studio, eat shit-food and have to take a crappy metro for work.
Or you can take a much lower salary, live in a nice 2-Br apartment, eat at nice restaurants and take a new nice metro for work, and still be able to afford a car.
You’d need $120k/year to afford 1 in New York, and $30k/year to afford 2 in Kuala Lumpur.
This seems to be the root of most, if not all, economic disagreements. It's just so hard to objectively measure these things.
Agreed. But I don't think it would take a herculean effort to do better than GDP.
The Human Development index is kind of okay, if you don't want to go down the more qualitative path. https://hdr.undp.org/data-center/country-insights#/ranks
Just because a broken window contributes to GDP doesn’t mean GDP is bad. Is your argument that the government is spending to break windows?
It's not inherently bad. It measures what it measures. It's just a terrible measure of prosperity.
See, for example https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-dav...
basically, yes. Its called the housing market - an asset that controbutes nothing to the economy goes up in value and makes life unaffordable for new generations.
There are pther manofestations of thos, and it is not always done by governments.
One of the few true reflections of economic health is commodities - those cannot be fakes.
Productivity has been increasing. The amount of land is fixed. In such a scenario, I would definitely expect the value of land to increase.
Uk is a densely populated country, and 95% of land is just empty - field, forest, whatever. Only 5% of land is built on.
Sure, but you also have to consider the proximity to where the productivity gains are happening. The median household income has increased 4 times over in SF since 1990 (30K - 120K). Do you really expect property values in SF to stay the same? And of course, that's just the median. At the high end, the difference is even more pronounced.
I agree, insofar that "handouts" are primarily, in monetary volume:
1) favorable loan terms for financial entities (loans in both directions, but ultimately favoring the bottom line of private capital);
2) favorable taxation terms for the wealthiest earners and owners (e.g., low capital gains and inheritance taxes, when compared to income taxes);
and 3) federal and state benefits that often face large and unnecessary administrative costs (in order to reduce fraud (which is only possible because they're means-tested or otherwise restricted));
in that order. And the first two rob the treasury of far, far more than the last. By orders of magnitude, particularly in the past few years.
The other option is they raise taxes, cut spending and they actually pay those debts off.
All debt comes due eventually, you can choose to go bankrupt or you can choose to pay it.
But if neither option happens in your lifetime, you don't need to care, if you are just trying to optimize for yourself.
Federal debt "comes due" all the time. The option you haven't listed (which is the one we're engaged in) is: "You can choose to borrow more money to pay your creditors".
The interest on federal debt recently makes up (very roughly) 1/3 of our total deficit.
This is why when the US doesn't raise the "debt ceiling" we risk defaulting on our debts.
That was my point.
At some point, we can't keep borrowing to satisfy our debt(s). The question then becomes, what happens? This current inflation is actually a not bad thing for US debt, as we are inflating away some of it. It totally sucks for those of us that want to buy food and shelter though.
Either we endure some hardship(s) and have a miserable decade or three or we crash and burn.
I'm betting we endure the hardships. The other option(s) are much worse.
> At some point, we can't keep borrowing to satisfy our debt(s)
Why not? It's just a question of the rate of growth of the debt, the interest rates the USG pays on its debt, the rate of inflation and the rate of growth of the GDP/tax base.
There is absolutely a level of deficit spending that can be supported indefinitely. The question is whether we are above or below that level, not whether that level exists.
There is indeed a possibility that a govt could, theoretically, borrow indefinitely. There is a LOT of assumptions in that calculation though, and it's pretty obvious the USA and almost every government never bothers to even try to live in that range.
So while what you say is theoretically possible, it's practically impossible, as there is almost no incentives for any people currently in government to try and sustain that, and incentives absolutely matter.
If you know of a practical example of this theoretical indefinite borrowing, I'd be very, very surprised.
>> you can choose to go bankrupt or you can choose to pay it.
There's another option. One that's far more politically favorable: You simply take out more and more debt, until finally the whole world sells US treasuries. at that point the fed prints unlimited amount of money to buy up all that debt. And when the US pays interest on that debt, it just pays it to the federal reserve which then sends it back to the US. This is the end game, we're looking at. And the result implies inflation and LOTS of it. that's what I mean when I say, they will default on the currency.
Does the market, who should know, agree with you?
(Hint: US 10 year T-bond rate is 3.4%. That's not very high. Also, we have the world's largest military and can do whatever we want.)
If you want an exciting doomer story to believe in, try deflation. It's worse than inflation, so you'll look more cynical.
I mean sure: the fundamentals all point to deflation: the aging population, the increasing debt and technology are all deflationary.
But, in this day and age where the fed has sooo much power, it doesn't matter. see below.
>> If you want an exciting doomer story to believe in, try deflation.
The Govt and the fed are both on the same page, in this regard: they will almost NEVER allow a deflationary spiral to happen. If you watch a lot of financial news from people who read the fed and intrepret what they're signalling, you'll find there is widespread agreement on this (especially as of the 2018 powell put).
In the history of countless countries and currencies from all over the world, all the outgoing empires and countries end up defaulting on their currencies in the end game. See Ray Dalio's latest book, he's got a great explanation on this.
You bring up an excellent point about the T-bond rate. If everyone already knows the endgame, then why hasn't the bond market priced it in yet? Shouldn't everyone be dumping T-bonds en mass? Are they slowly? these are the questions I'm trying to get answered. Part of it is because the fed was already buying up a bunch of t-bonds, hence a sort of partial yield curve control. other participants, must not be ready to give up on bonds yet, especially the institutional investors who are looking at more short term gains rather than long term. You can still make money on bonds in the short run betting on interest rate fluctuations.
That is our current trajectory, but anyone with a modicum of common sense knows there is an end.
The question, which was what my comment was about, is how we eventually get to the end. We either buck up and pay it, or we crash and burn.
I'm betting we buck up and pay it, and just have a very bad decade or three, while taxes go up and spending goes down.
> And when the US pays interest on that debt, it just pays it to the federal reserve which then sends it back to the US.
Uhh yeah, about those remittances[1]...
>People are expecting more and more handouts and no one wants to pay for it
I think this is more that we're entering a post material scarcity economy kind of like we changed from almost everyone being farmers. We're leaving behind the economy where almost everyone manufactures stuff to where they do something else.
>we're entering a post material scarcity economy
This seems a rather dangerous view, as the post scarcity era of maybe the late 20th century globalism, or the larger industrial revolution and coincident population explosion, could be nearing it's end. Peak cheap oil may be just around the corner. The growth built atop improving agriculture yields, cheap oil, and cheap labor has resulted in population growth that cannot be maintained without corresponding sources of the same cheap input sources.
And part of this is exacerbated by what you describe: a huge portion of population not subsisting on their own work output but depending (or being subsidized by) the work and resources of others.
> subsisting on their own work output but depending (or being subsidized by) the work and resources of others.
How to even begin defining who is subsisted by who? Is the FAANG engineer creating sustenance or is he subsidized?
I see something else. Millions of people working their asses of, many in multiple jobs, in the richest country in the world.
Most of the productivity increase of the last decades has gone to the richest part of the population. Who's subsisting on who?
> think this is more that we're entering a post material scarcity economy
No we’re not. Materials for housing, etc are just as expensive as ever. Food still has to be heavily subsidized by the government directly and indirectly (“water rights”).
Post-scarcity is a fantasy world used to justify heavily socialist policies that allow people to not work without having to wonder who does have to work.
Your etc is doing a lot of work here, but post COVID craziness aside I don't think building materials are more expensive than they were in 1990. As an example, lumber has been flat or slightly down since 1995:
https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_an...
His point is, the material standard of living is low as ever or even lower. This surprises people, but the bare necesities of the lowest level of maslow's heirarchy of needs are now more expensive than they have been in a long time.
Just look at the cost of shelter. Housing costs sooo much more than it did 50 years ago or even 200 years ago. During the time of Henry david thoreau, an average house cost 800 days of unskilled labor wages (meaning 800$, the average unskilled worker made 1$ per day). Today, it's over 5000 days of unskilled labor wages when you take into account property taxes. the difference in shelter cost is so enormous, that back then 1830s, mortgages were often just 10 years. And thoreau thought even that was too much.
That's not true at all. Most necessities (food, clothing) are far cheaper now in real terms than they were in the past.
Housing is more expensive on average, but only because houses have gotten much larger (the average new house was ~1000 sqft in 1920 and ~2600 sqft today), and are more likely to be in urban areas where land is scarce (20% urban in 1860 to 80% urban today). Of course modern housing is built to a much higher standard as well -- in Thoreau's time, the average home would not have had indoor plumbing or electricity.
You can absolutely find cheap housing if you're willing to live somewhere small in the middle of nowhere. But most people don't want to do that these days.
> You can absolutely find cheap housing if you're willing to live somewhere small in the middle of nowhere
I camt get to work from the middle of nowhere. Social services willvtake away my kids if O live in a wooden hut without heating.
Let's compare items with equivalents of their time.
Otherwise I can make unfavourable comparison with cavemen -their realestate would cost millions today
That's not because of material scarcity most of the time, it's because the US has very bad land use policies so we don't build enough houses for you to buy.
(And industrialization, like prefab houses, doesn't work because the policies are set by local governments so you can't produce a single viable product for all of them.)
Food is heavily subsidized by the government to avoid complete and total social instability. 100 years ago we realized that a underfed population made a terrible workforce and worked on remediating that. All the while farming automation and the green revolution made it so a large portion of our population working in farming/food became just a very tiny fraction. Meanwhile a pure capitalism based farming community would optimize for producing just in time and just enough to maximize profits which would lead to a complete fucking collapse next time a drought came around.
This ''socialism'' you're so seemingly afraid of was a foundation of the capitalistic growth we had in the last century.
> a pure capitalism based farming community would optimize for producing just in time and just enough to maximize profits which would lead to a complete fucking collapse next time a drought came around
I'm not sure where you got this idea, but unless you have a personal definition of capitalism that doesn't equate to private ownership of the means of production, this is an obviously false claim.
Capitalist economies are notable for their ever increasing investment in the future and corresponding decrease in the time preference of money as an economy becomes more developed.
> Capitalist economies are notable for their ever increasing investment in the future
Oh really? Then why are all emergency services are run by governments?
Why doesnt private market invest in infrastructure and why is US infrasteucture in such poor condition?
Is that why capitalist society fails to invest into clean energy and hault climate change? Is that why soil erosion was running rampant untill government regulation was introduced, we had lead in petrol and rivers used to catch fire?
UK, as the most capitalist societt in Europe, looses the most money on heating the most poorly insulated houses. It knocked down its last gas storage facility because it was unprofitable.
Capitalis plans for the next quartery report, it does not plan fpr once in a decade famine. systemic relisience against rainy day is not one of its strength.
> People are expecting more and more handouts and no one wants to pay for it.
Do you mean the super rich that want more of the tax revenue for themselves, or boomers, or who are "people"?
the point is everyone wants more govt spending, not necessarily handouts. Voters want larger government spending.
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.
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.
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.
There are many different types of inefficiencies that may arise in the short-term, and there are plenty of funds that very skillfully capture them. But they're all constrained by how much of their capital they can trade before they're the ones moving the price.
Jim Simons makes 80% a year from his fund but he still has to find boring ways to invest that extra money because it can't go back into the fund.
The beauty of diversified buy and hold is that it allows investors to stay invested to reap the benefits of compound growth. Over a long period of time EMH does hold up pretty well.
Getting access to every trade is trivial if you're able to fork over $$$:
There are way more trades than those conducted on NYSE, or even the other lit markets. You have a multitude of dark pools that count for approximately 13% of all consolidated trading volume as well as internal matching that counts for 18% of all consolidated trading volume.
Dark pools do report their trades so it's possible to access it, but internal matching goes unreported, that data is kept by each respective broker.
The Medallion Fund by Renaissance Technologies has had an average annual return of 71.8% from 1994-2014.
What is not known, however, is if those returns were achieved through legal means…
Are you referring to the tax evasion? I think they paid a slap on the wrist. Otherwise I am interested.
Bernie Madoff promised high returns while obfuscating his business model as well. It went well until it no longer did.
innocent until proven guilty.
presumably the SEC would have their software sift through transactions to correlate insider trading (which is one form of illegal way to make money).
> innocent until proven guilty.
This is not a court of law.
This is finance.
If it is too good to be true it is "guilty". What was the other option? Irrelevant.
If you are interested in the machine learning part, you can try the Numerai tournament ( https://numer.ai ). They provide obfuscated high quality hedge fund data that participants can train their models on and send back only their predictions and then they combine the user's predictions into their market neutral meta model which they actively trade. So far their fund's returns looks promising in their category (market neutral fund) especially in the latest months: https://numer.ai/fund
You can get reward too if you stake their own "made up" crypto token on your prediction, but that comes with the usual crypto volatility risks too, so I do not recommend staking as a beginner unless you have a top model and OK with the crypto risk. Also they use only the staked predictions in their meta model because they use the stake size as an indicator for confidence of the user in their model (they are creating a stake weighted metamodel)
It's not easy too be good at it and it's getting harder because they want not only good predictions but diverse set of models which help eachother to improve their meta model (that's the TC metric on their leaderboard of models). If you have some machine learning experience it's easy to get started with their example script and see how far you can get with hedge fund quality data. Boosted tree models are having good results but Neural Nets are more customizable so you can try more exotic models with them to have the diversity they are looking for.
Also one of their early investor is Howard Morgan the co-founder of Renaissance Technologies.
Have you heard of Citadel?
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..... Among other things, it spans multiple countries, and includes housing in the comparison.
Would be great if you explained how's it better or if it reaches different conclusions.
Hacker news discussion on it 4 years ago: https://news.ycombinator.com/item?id=19817584
Interesting. Yet so broad that it really can't inform an individual's expectations for their returns.
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.
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.
Or we can make 100 trillion pound notes like in Zimbabwe https://www.cnn.com/2016/05/06/africa/zimbabwe-trillion-doll...
It was ZWB (Zimbabwe dollars), but I can see why you would assume "pound" given the country's history. Source: I have one of these notes on my coffee table :) It lives with a $1 bill that was printed only a couple of years before it.
Bad stuff happens when a government gets these things wrong!
Or japan. In romania people still say “one million” instead of “one hundred”
Interesting. I remember that some Bitcoin people were trying to do the reverse when the price was 1000+ by talking about mBTC instead of BTC. I guess http://bitcoinity.org/markets still does it.
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.
Turkish did that. In my childhood bread was 200.000 liras for example.
About a decade ago they renominated it. "New Turkish Lira" was born, where 1.000.000 Old Lira = 1 Lira.
So as another comment has mentioned, probably that would happen.
The Titanic cost $7.5 million to build, which is $200 million in today's money (as of 2020) [1]. I'm pretty confident this is not the cost of the average flat in London.
[1] https://www.history.com/news/titanic-facts-construction-pass...
The price was 1.5m pounds, as the ship was not built in the US. https://en.wikipedia.org/wiki/Titanic
Pretty sure the Titanic was paid in GBP -- the 1.5M GBP number is correct, the exchange rate was bit different back than.
https://steemit.com/money/@lixtiklipbalm/exchange-rate-of-br...
And when the Titanic cost £1.5M, the average weekly wage in the UK was £5.
/r/whoosh
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.
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.
it seems impossible to assess risk of current environment based on history
i wonder if that’s been perpetually true for all of history?
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
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.
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.
"The market can remain irrational longer than you can remain solvent."
That's why one is advised not to invest what one cannot miss
But then what? Put it into a money market account where it gets eaten up by inflation?
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.
> 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.
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.
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.
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.
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.
> 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_His...
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.
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).
Wouldn't the stock market chart for Russia have a rather sudden stop around 1917?
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.
Damn. I’m wondering if crypto could follow a similar path, especially with ICOs.
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.
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.
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/break...
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)?
It looks like they based it on the arithmetic mean of log-returns, which is equivalent to taking the geometric mean.
I don't see how that relates to the article?
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.
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.
TLDR: interest rates used to be higher.
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?
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”.
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?
>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.
He really needs to read Edward Tufte! (Even plain Latex tries to put the figures near to the text.)
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.
> If I was alive in 1923 and stashed away $8 million in cash it would only be worth about $140 million today.
Stashed it away as cash where? If you had $8M in 1923 and kept it under a mattress, it would still be $8M today - the difference is due to inflation - in 1923 you would've been the equivalent of a Billionaire today - and today... you'd have $8M.
I think things like this matter a lot.
If you invested in treasuries or only had a savings account with interest - you're going to get eaten alive by inflation, and over a long period of time - your wealth will decrease enormously - maybe as much as 50%+ (with a savings account).
If you instead had invested in the S&P - and it did what it did over the last 100 years - you'd have 2-3x what you started with in real terms.
Although, past performance != future performance. No one knows what the future will hold. Maybe the US won't even be around. Maybe we'll move to socialism. Maybe private companies get overrun with crooks and everyone loses most of their money because the whole S&P goes Enron/Wirecard. Who knows!
But my guess is I'll be better off with equities than cash medium & long term. And fortunately, I'm not too concerned about short-term.
If you only had a savings account with interest, you'd be lucky to have anything considering the great number of bank failures and lack of FDIC for a portion of that timeframe.
> If you had $8M in 1923 and kept it under a mattress, it would still be $8M today
Saving account interest rates haven't been 0% for the whole last 100 years.
It's not a great investment, but you'd have substantially more than $8M.
The parent specifically refers to holding it as cash (“under the mattress”), though. And of course, if you do put it in the bank 1923, there’s no deposit insurance for the first ten years, any possible bank might just go under in the first ten years…
How many of them did though?
The numbers I find are that some 11,000 out of 25,000 U.S. banks failed between 1929 and 1933 - the key words to search for are “bank failure” and “Great Depression”
How much more would you have with a savings account?
Apparently the $140M number was bonds. Edit: Or, theoretical bonds that match inflation and don't actually exist?
In a non-funny-money-world, government bonds would yield more than expected inflation.
No one would ever give the government money expecting to lose money.
Only in a world where you can always count on the government to lower interest rates ad-infinitum to keep itself solvent which pushes up the value of your bonds to someone who's willing to pay more money to lose the same amount of money later (a greater fool - although, are you a fool if you've been able to count on this like clockwork for the last 30 years?).
> In a non-funny-money-world, government bonds would yield more than expected inflation. > No one would ever give the government money expecting to lose money.
What would they do? Is there a dominating (stochastically) alternative?
I don't follow your argument here.
How about a hypothetical?
Let's say government bonds pay 3%, they have done so for decades, and we're confident they will keep doing so for decades.
So right off the bat, no lowering of interest rates ad-infinitum.
Let's also say inflation is 4%.
Everyone wants to beat inflation. But you need to find an investment opportunity for that. And the higher an investment yields, the riskier it is.
If you can't find a good investment, what's plan B? Surely it's not putting your money in a vault and losing 4% a year. Isn't plan B buying the government bonds and losing only 1% a year?
AAA corporate bond yield has always been about ~1% above the treasury yield [1].
Almost nobody has bought government bonds for a long time besides pension funds (due to obligations), banks (due to regulations), foreign governments (due to ForEx necessity), the Fed, and a pretty small amount (~8%) held in 401ks (overwhelmingly by older folks) [2].
Rich people certainly aren't buying Treasuries to protect their wealth - unless it's someone like DoubleLine betting on interest rates only going down and the forced greater fool (pension funds).
401k people are only buying treasuries because of the "age old wisdom" - not because it makes sense unless you think like DoubleLine that treasury yields - long term - are only going down.
[1] https://fred.stlouisfed.org/series/AAA10Y
[2] https://www.thebalancemoney.com/who-owns-the-u-s-national-de...
This is just misinformation, I have worked with investment firms and family offices that regularly buy government securities.
The vast majority of HNI wealth is not in treasuries. Some of them have astonishing amounts of money. They own everything under the Sun - obviously some treasuries. There's a lot of rich people - some of them at times are owning a lot of treasuries.
The reality is - a small percentage of treasuries are owned by individuals (including - and mostly - 401ks) - I linked to the data above.
Anecdotal evidence that you helped some people buy treasuries does not dispute that.
Something like ~5% of treasuries are not owned by The Fed, Foreign Governments, Pensions, 401ks, and Banks.
The vast majority of that is owned by bond traders. You're talking about maybe $600B owned by a group of people that has >$30T in wealth. That is basically nothing.
That is correct, probably just a few percent. But the language here is making it sound like they are not purchased at all by individuals or family offices, and that is not true.
This isn't true.
If you had a bunch of gold, for example, you'd have to pay for security to... secure it.
People are willing to "pay a premium" to store money somewhere risk-free.
If you had $8million in 1923 cash stashed away, you’d have $8million in 2023 cash today. Ie you’d have lost about 94% of your buying power.
And if you had 8 million in a bank in 1923 there's a good chance it would have all been gone when the bank collapsed and there wasn't FDIC insurance.
1923 dollars are worth more than face value to collectors, but that's marginal value so you'd have to sell them pretty slowly.
Anyway, that's what you get for not contributing to money velocity. It's not designed as a savings product, so don't save with it.
If we're being pedantic, it depends on what kind of cash. A silver 1923 dollar coin goes for $20-30 today.
Through most of that history, interest rates in savings accounts exceeded inflation, often significantly so. So I find this unconvincing. Obviously not a great investment comparatively, but the number in the account is going to be significantly higher.
Really? I can't easily find a chart going past 1980 for "savings rates" nevermind that these accounts often have a $ cap, and nevermind going back to 1920.
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?
From peasants shoes to peasants shoes all in three generations, signore Medici.
> Why would it not be worth $8 million?
You've got it backwards. In 1923, your 8 million 1923-dollars was worth what $138 million 2023-dollars is today. You started with $138 million 2023-dollars, but denominated in 1923-dollars that's $8 million.
If you just hold on to it your 1923-dollars have become 2023-dollars, but there's still exactly $8 million of them. You've lost nearly 95% of the value.
however, given that your 1923 dollars were likely silver dollars which currently trade for $32 (for junk grade) and up ... I made that 8m * 32 = 256m :) - and better if you were sensible and stored un-circulated dollars
>> If I was alive in 1923 and stashed away $8 million
> your 1923 dollars were likely silver dollars
It's unlikely that you had 200 metric tons of silver coins stashed away.
> It's unlikely that you had 200 metric tons of silver coins stashed away.
I think the grandparent was imagining they were silver certificate dollars[1], not actual silver dollar coins. That said, silver certificate dollars needed to be converted at some point in the past, in 2023 they can't be converted and only have collector value, and $8 million worth would dilute their collector value substantially.
[1]:https://www.investopedia.com/articles/markets-economy/090116...
I’m surprised that the certificates can be worth more. I guess they are rare - it may be hard to sell them all for much more than a dollar on average.
In any case eight millions are several metric tons.
Well, you'd have to have a safe place to literally store that cash. If that save place was a bank, then you'd not have silver dollars, unless you paid for storage.
Also banks weren't really safe that entire time!
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.
Unfortunately we don't have such a thing. Especially in 1922, we didn't even have TIPS, or 100 year bonds. The best case scenario you're looking at something like 10 year treasuries at 4.3 percent[1] in 1922. Shorter durations will help match dramatic inflation moves things get weird in the great depression -- a bout of 10 percent deflation happened in 1933.
[1]: https://www.multpl.com/10-year-treasury-rate/table/by-year$8 million in cash will always be $8 million in cash. "Stashed it away" is pretty vague but cash is cash.
Only if you literally mean physical cash. Banks offered pretty significant interest rates historically.
Why say “stash away” if not to suggest the literal “hiding the money somewhere” meaning rather than “opening a savings account”?
With the slight caveat that the FDIC wouldnt exist until a decade after you put your money in and in no case would it protect all 8 million dollars.
> Why would it not be worth $8 million?
mice ate some.
Meaning trust fund children.
The article provides a counterpoint: If you invested in "the market" in 1851, you'd still be underwater (in real terms) in 1932.
See page 44.
A counterpoint to what?
What's your definition of "underwater (in real terms)"? That investment would have been paying dividends for decades. What happens with those cash flows?
It was a counterpoint to the common wisdom that "stock returns beat inflation over long-term periods." But I didn't realize the author discarded dividends -- that makes the entire analysis suspect.
Not fair. That Princess Diana beanie baby is a hold. Take a long position, you're going to be looking at it until you die!
I wish I still had my pogs! (Almost not kidding that it's due for a re-commercialization or embedded marketing for some comic book franchise)
What return are you assuming for cash?
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.
And it is still (by a mile) the best advice you can give someone who (1) doesn't rely on the money in the short term and (2) doesn't want to spend mental capacity on managing his money.
The only difference i'd suggest for people who want to spend 1% more mental capacity is to mix their ETF up so they have global and other-assets exposure.
People like to feel in control, like to gamble, like to be clever, like to know a secret trick. But they are just lying to themselves.
No matter the macroeconomical circumstances, there's no magical risk/return profile that will beat stocks until there's a significant paradigm shift (and no, a minor recession after a period of weird monetary policies isn't it)
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.
Think about your investments intelligently instead of looking for a guaranteed sinecure.
Do not do that. Thinking about investments violates like four of the rules.
https://www.bogleheads.org/wiki/Bogleheads®_investment_philo...
The purpose of financial advisors is to stop people from thinking; if you just stop thinking on your own you'll never need one.
I could hardly imagine a dumber thing to say but you do you buddy.
Enjoy performing worse after fees than just buying VTSAX then.
Day trading?
What alternative would you suggest?
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".
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.
> human civilization has only been exploiting oil since ~ early 1900s.
Solar is within oil's error bars on a cost per kWh basis. Sure, there are kinks in storage and transport to work out. But the fundamental cost of energy doesn't look likely to change in the coming century.
What I meant is that oil enabled fundamentally new things like personal car transportation, plastics, space age materials and cheap and convenient gas heating.
Solar can still provide all of that, but it's not a revolution, just a substitute.
Does that cost include the externalities of how the oil actually used? I don't believe solar (+ all the other renewables) is equivalent to drilling for oil, piping it thousands of miles, refining it, then burning it somewhere. Happy to be proven wrong but this doesn't pass my smell test.
>Tech advancements are slowing down
Are they? I think they've been slow for maybe the last 20 years, but it seems like the advances in things like AI and Genomics are rapidly accelerating and may lead to growth like we haven't seen in several decades...
I was 18 in 2003 so I can remember the tech of that era vividly.
I got my first mobile phone in 2002. Mobile phones had been around for a while but at least in Australia phone plans were very expensive and it was not really affordable for my parents to pay for a phone for me while I was in High school.
A few of my friends had phones towards the end of High School (maybe 40% of people had a phone by end of school) but mostly you would call people's land lines to get in touch with them. The most popular phone at the time was the Nokia "Brick phones" like the 3210.
My first phone was a Motorola I can't remember the model but it was absolutely privative compared to modern day phones - it had a monochrome screen, no camera or anything like that. About the only cool feature was it had was a polyphonic ringtone which was pretty advanced for the time. A Few years later (2005ish) I upgraded my handset to a "flip phone" which had color screen and a camera (but camera quality was shocking everything just a mess of pixels).
I want to say it was maybe 2007 or 2008 when I started to get data (i.e. internet) on my phone it was really slow (and expensive) but I remember looking up a train timetable on my phone and thinking it was revolutionary, having the internet in your pocket genuinely felt game changing.
I purchased a computer with money I saved up working over the summer before I started Uni. It was a Pentium 4 with a 2 ghz Clock speed. It ran Windows XP (Cheaper lower end computers at the time had Windows Millennium Edition, which was complete garbage). It had a 19 inch CRT monitor which weighed a tonne. "Flat panel" LCD screens were available but were very expensive.
ADSL internet had just started coming out in Australia, before that it was 56k dial up or cable (which was extremely expensive I only knew one person with cable internet). I used to play games like Starcraft and Diablo 2 over dial up around this time period, if my Mum picked up the phone to make a call the internet would drop out.
DVD's were relatively new technology. I got the Collectors Edition DVD of Peter Jackson's Lord of the Rings as a Christmas gift, it is still one of my prized possessions.
If my 18 year old self was to look around my home today he would be in awe of how much the technology has changed.
> I think they've been slow for maybe the last 20 years
Really? 20 years is the difference between a generation being raised pre/post:
* smart phones
* streaming services (endless free content)
* massive computing storage / processing upgrades
* mass adoption of eCommerce
* video calling
* ubiquitous social networking
* EVs
* mRNA vaccines
* Mars exploration
* LHC
* 3D printing
It amazes me to look back at 2003 and see how far we’ve come.
Between 1940s to 1980s we went from a disconnected world to spaceflight, moon landings and global commercial aviation. Radar was invented, the atom was split, nuclear weapons shook the world. Television appeared
What have you got to place against that, smartphones? Streaming, seruously?
40s-80s is a 40y gap vs. 02-23 is a 20y gap.
The last 20 years have been more revolutionary from a digital / social / information perspective. A person in a remote village in a foreign country can now use StarLink to access the world’s information on Wikipedia. They can learn any new skill on YouTube. And they can work for a large US tech company via Slack / Skype, or open up a small business on Shopify and accept money instantly in any currency. Translation across any two languages can be done instantly via smartphone. It’s transforming cultures, countries and the global marketplace.
It doesn’t have the visual of a moon landing, but it’s still incredible and has more practical implications for a larger number of people.
I don’t think we’ll really start to see how massive the impact is until another 20 years when we look back and see the ripple effects of this digital connection we’re creating throughout the world.
Compare 1940 to 1960, 1960 to 1980, 1980 to 2000 -- then compare 2000 to 2020.
2000 to 2020 is the least impressive 20 year period by a long shot.
I would agree. 2000-2020 feels more evolutionary, not revolutionary. I grew up in the 80's and 90's, so perhaps my own perspective is warped.
> massive computing storage / processing upgrades
I feel that the improvement in the previous 20 years was much more massive.
Forty years ago PCs had been introduced quite recently and an internal disk was still a non-standard option.
Ditto for “smart phones”. Forty years ago 1G telephony was not yet available in the US, nevermind how dumb and bulky those phones were.
Some of these are really just older tech advancements that have become more mainstream. E.g., Mars exploration is older than 20 years, 3D printing took off in part when decades old patents expired, rna vaccines date back 30+ years etc. etc.
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.
> 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
What’s that mean? Solar is providing energy at similar costs.
It's providing energy with fewer intermediaries soaking up profits along the way, and can be done "anywhere" the sun shines instead of where resource deposits are concentrated. Entire political classes will be (and are) mobilized to push against this. There is a lot to lose for a lot of people.
That and a huge % of the stock market's value right now is built up of energy companies. Especially here in Canada.
So we’ll spread out energy production to more smaller actors, and it will be more interesting how energy is used. That could rejuvenate markets, let old fossil giants die.
Trudeau should rejoin the Paris Accords and move to the secondary and tertiary sectors (or as Mulcair put, get rid of Dutch Disease), or Canada (and everybody else) will be fucked.
Perhaps you're misreading me as thinking the collapse of fossil fuel energy sector would be a bad thing? It wouldn't be, in the bigger picture.
But there's still boatloads of people over-invested in it who are going to be in for a rude awakening if humanity actually gets its shit together.
>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.
We didn't, we have Social Security. You don't have to contribute to a 401k. And you can keep it all in a money market fund if you want; it'll still be tax advantaged.
Sure, I completely agree with you. No argument there.