[HN Gopher] Stock market charts you never saw (2021)
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Stock market charts you never saw (2021)
Author : dot1x
Score : 265 points
Date : 2023-01-19 18:07 UTC (4 hours ago)
(HTM) web link (papers.ssrn.com)
(TXT) w3m dump (papers.ssrn.com)
| castom wrote:
| [flagged]
| b33j0r wrote:
| 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?
| [deleted]
| rwmj wrote:
| He really needs to read Edward Tufte! (Even plain Latex tries
| to put the figures near to the text.)
| bumby wrote:
| > _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.
| nostromo wrote:
| The Titanic was built a bit over 100 years ago for 1.5m pounds --
| today that'd buy you a nice London two-bedroom apartment.
|
| I wonder if in 100 years from now, people will casually be
| talking about their nice (but modest) London two-bedroom
| apartment they bought for 100m pounds.
| acdha wrote:
| Of course, if you convert that to current value that's
| something like PS235M at current rates, which seems more
| plausible (and would have been more like PS400M without the
| self-inflicted damage of Brexit). New cruise ships cost more
| but they're also larger and have more amenities, and holding so
| many more passengers means more expenses for things like
| furnishings.
| nly wrote:
| 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 PS1M 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 ~PS700K in
| assets. That leaves PS300K for a modest home somewhere outside
| of London and the South East. One false move with your PS1M
| winnings and you'll end up back in the office. The PS is worth
| half of what it was in 1994 when the Lottery started.
| duderific wrote:
| Or we can make 100 trillion pound notes like in Zimbabwe
| https://www.cnn.com/2016/05/06/africa/zimbabwe-trillion-
| doll...
| not_math wrote:
| 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...
| quickthrower2 wrote:
| /r/whoosh
| nostromo wrote:
| The price was 1.5m pounds, as the ship was not built in the
| US. https://en.wikipedia.org/wiki/Titanic
| pessimizer wrote:
| And when the Titanic cost PS1.5M, the average weekly wage in
| the UK was PS5.
| netrus wrote:
| 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...
| sleton38234234 wrote:
| 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.
| treis wrote:
| >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.
| PKop wrote:
| >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.
| kortilla wrote:
| > 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.
| treis wrote:
| 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_a
| n...
| smaddox wrote:
| 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.
| xyzzy123 wrote:
| 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.
| daze42 wrote:
| This seems to be the root of most, if not all, economic
| disagreements. It's just so hard to objectively measure
| these things.
| zie wrote:
| 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.
| shkkmo wrote:
| 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.
| [deleted]
| aj7 wrote:
| "The market can remain irrational longer than you can remain
| solvent."
| worik wrote:
| For modern computing/finance type of people (I was but now have
| reformed) the lack of financial data is a problem. Even if you
| can get access to every trade, which is hard, the amount of data
| is not what modern machine learning types require.
|
| Thr EMH is a hard mistress too. There is no amount of data that
| can help you solve unsolvable equations.
|
| So alot fall into this trap, synthetic data. Some of the best
| statisticians on the planet have. It is so tempting to believe
| that there is money to be made by being cleaver trader I markets.
|
| General, there is not. Buy and hold is not a shibolith it is a
| strategy. It is the only strategy that can be replicated.
|
| Synthesizing data to disprove buy and hold is wishful thinking.
| Data snooping.
| yold__ wrote:
| Have you heard of Citadel?
| antisthenes wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| guhidalg wrote:
| 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.
| antisthenes wrote:
| 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.
| sauwan wrote:
| >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...
| awb wrote:
| > 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.
| nostromo wrote:
| 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.
| icedchai wrote:
| 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.
| kgwgk wrote:
| > 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
| internal disk were 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.
| bumby wrote:
| 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.
| [deleted]
| cmrdporcupine wrote:
| 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.
| ant6n wrote:
| > 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.
| cmrdporcupine wrote:
| 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.
| ant6n wrote:
| 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.
| eatsyourtacos wrote:
| >Wait until people's 401Ks start to explode
|
| Maybe we shouldn't have moved to such a completely moronic
| system them which shifts all the risk to the individual and
| just "hope" they magically make money on something they have
| no control over.
|
| It all works until it doesn't.
| cmrdporcupine wrote:
| Sure, I completely agree with you. No argument there.
| moloch-hai wrote:
| Off-topic...
|
| I was looking up NRGV, the fraudulent energy storage company (the
| one with concrete blocks and cranes) which hit $2.4B last year
| and then fell to a sixth that, before drifting up a bit.
|
| According to analysts, if I read the summary right, it should be
| considered worth $1B, short-term, and $0, long term. Last I
| checked it had $90M in cash, down from $100M a few weeks ago.
|
| Now, with $90M they could buy an actually viable energy storage
| technology to (most likely) run into the ground.
|
| What are these analysts thinking, recommending BUY of a
| fraudulent company with no better prospects than your average
| fusion start-up or Hyperloop, and already trading at several
| times its objective value? Is it a judgment about where ignorant
| investors will take a no-future company that has been well-hyped,
| a la Tesla? And, could they be right?
| TylerE wrote:
| The actual rating doesn't really matter, it's the changes that
| do.
|
| Strong from a previous "strong buy" is very different than a
| strong from a previous of "hold" or even "sell".
| [deleted]
| devops000 wrote:
| It's very common nowadays to see people suggest investing into
| S&P500 ETFs and keep them forever. More then 20% of US population
| owns stocks.
|
| I think we are near a change into this paradigm.
| snow_mac wrote:
| What alternative would you suggest?
| [deleted]
| zitterbewegung wrote:
| What is your suggestion to do instead? Owning a non index fund
| will have a fee of at least 1% Putting it under your mattress
| makes you lose from inflation. I'm not sure doing 60 / 40
| stocks and bonds could be another solution.
| Invictus0 wrote:
| Think about your investments intelligently instead of looking
| for a guaranteed sinecure.
| nfcampos wrote:
| Revised follow-up paper
| https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
| danuker wrote:
| Data is available as a spreadsheet here:
| https://www.edwardfmcquarrie.com/?p=579
| metacritic12 wrote:
| It seems like this follow up paper clarifies the data's vision
| a lot more. Notable changes from the previous version discussed
| in a sister thread here:
|
| - There is no more emphasis on price-only-inflation-adjusted
| returns. Good riddance: getting rid of dividends makes no sense
| and is borderline intellectually dishonest just to make the
| point.
|
| - He no longer argues stocks don't work for the long run, just
| that bonds were as good in the past. This is a lower bar to
| meet as bonds in the past, especially corporate bonds as he's
| included, are actually quite risky!
|
| - Finally there is some argument to be made that bonds are
| better investments when monitoring technology is poor -- since
| insiders can steal equityholders' wealth. But the 20th century
| invented good accounting, auditing, etc to reduce that and
| drive up equity returns.
| dot1x wrote:
| > getting rid of dividends makes no sense and is borderline
| intellectually dishonest just to make the point
|
| How so? Once you retire, you don't let dividends reinvest.
| Makes perfect sense.
| whall6 wrote:
| There are enough "cash cow" securities that maintain a same
| / similar share price by distributing heavily for this to
| make sense. The price wouldn't show the whole story and the
| cash could go much further over 100 years than just sitting
| in a bank account.
|
| I don't know many people that spend 100 years in
| retirement.
| Dylan16807 wrote:
| 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.
| metacritic12 wrote:
| Exactly -- dividends and share buybacks are nearly the
| same, but the original paper stripped out the first.
| danielmarkbruce wrote:
| It's not a chart of "how much money does Jonny have".
| danuker wrote:
| 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
| dot1x wrote:
| Seems like you agree returns would be even worse since
| you'd take out more than the dividend to survive.
| Dylan16807 wrote:
| 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.
| NovemberWhiskey wrote:
| You can absolutely die with zero: buy a life annuity and
| let someone else worry about the problem.
| ghaff wrote:
| 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.)
| 8note wrote:
| 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
| NovemberWhiskey wrote:
| 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.
| ghaff wrote:
| 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.
| NovemberWhiskey wrote:
| 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.
| ghaff wrote:
| 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.
| NovemberWhiskey wrote:
| 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.
| dot1x wrote:
| 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.
| ikiris wrote:
| but they still exist and can be a large fraction of the
| value...
| hartator wrote:
| > Once you retire, you don't let dividends reinvest. Makes
| perfect sense.
|
| You don't let interests from bonds reinvest as well then.
| coliveira wrote:
| Removing dividend does make sense because dividends are
| taxed. You cannot reinvest all dividends, unless you're using
| a tax advantaged account.
| lexapro wrote:
| Price increases are taxed as well (eventually), do you also
| remove them?
| fshbbdssbbgdd wrote:
| Stepped-up basis takes care of that. Buy, borrow, die!
| NovemberWhiskey wrote:
| So are bond coupons, and (within the current regime) at a
| disadvantageous rate relative to dividends!
| MichaelDickens wrote:
| This might justify discounting dividends (eg reducing them
| by 20%), but not removing them entirely.
| roussanoff wrote:
| 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.
| nonethewiser wrote:
| Interesting. Yet so broad that it really can't inform an
| individual's expectations for their returns.
| dot1x wrote:
| Would be great if you explained how's it better or if it
| reaches different conclusions.
| [deleted]
| mrep wrote:
| Hacker news discussion on it 4 years ago:
| https://news.ycombinator.com/item?id=19817584
| mooreds wrote:
| You'll want to download the PDF and then scroll to page 43 to see
| the charts. The previous pages are about methodology, I think, I
| scrolled past them to see the pretty pictures.
|
| Interesting look at truly long term results from the US stock
| market and bond market. Back ot the 1850s. Also looks at when
| stocks and bonds lagged "the average" or performed poorly for
| decades.
|
| I guess my question is: where else are you going to go to invest
| your savings? Maybe real estate (but it can be a lot of work),
| maybe cash (but you can lose a lot to inflation)?
|
| Government pension or annuities can be an option, but then you're
| essentially giving up some upside and pushing the same decisions
| onto another person (though they have more options, since they
| have much more money).
|
| Just another argument for a diversified portfolio, rebalanced
| regularly.
| autokad wrote:
| 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.
| recuter wrote:
| If I was alive in 1923 and stashed away $8 million in cash (Edit:
| 100y bonds) would only be worth about $140 million today.
|
| Had I put it into some fancy ETF (Recall Vanguard dates back only
| to 1975, but whatever) I'd be a billionaire.
|
| That's it, that is the entire difference of less than an order of
| magnitude. Don't reckon the nickels and the dimes matter much to
| centenarians.
|
| Most people don't even have $8000 to invest so they plow it all
| into crypto and beanie babies and we scoff at them trying to x10.
| Food for thought. Memento Mori.
|
| Edit for clarity: I obviously didn't mean stash cash under the
| mattress. Sorry for the confusion.
| jldugger wrote:
| 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?
| knodi123 wrote:
| > Why would it not be worth $8 million?
|
| mice ate some.
| psychlops wrote:
| Meaning trust fund children.
| quickthrowman wrote:
| It should read "If I was alive in 1923 _and invested $8M in
| 100y bonds that return the exact rate of inflation_ , I'd
| have $140M today"
|
| Plugging it into a USD inflation calculator checks out.
| bobleeswagger wrote:
| $8 million in cash will always be $8 million in cash.
| "Stashed it away" is pretty vague but cash is cash.
| tarboreus wrote:
| Only if you literally mean physical cash. Banks offered
| pretty significant interest rates historically.
| jldugger wrote:
| 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.
| kgwgk wrote:
| Why say "stash away" if not to suggest the literal
| "hiding the money somewhere" meaning rather than "opening
| a savings account"?
| jldugger wrote:
| 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
| recuter wrote:
| From peasants shoes to peasants shoes all in three
| generations, signore Medici.
|
| > Why would it not be worth $8 million?
|
| https://www.in2013dollars.com/us/inflation/1923
| sieabahlpark wrote:
| [dead]
| lkbm wrote:
| 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.
| ByersReason wrote:
| 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_
| roflyear wrote:
| 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!
| kgwgk wrote:
| >> 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.
| roflyear wrote:
| What return are you assuming for cash?
| [deleted]
| [deleted]
| [deleted]
| ilikehurdles wrote:
| 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.
| tarboreus wrote:
| 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.
| roflyear wrote:
| 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.
| onlyrealcuzzo wrote:
| > 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.
| ceejayoz wrote:
| > 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.
| Dylan16807 wrote:
| 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?
| onlyrealcuzzo wrote:
| 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?).
| Dylan16807 wrote:
| 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?
| onlyrealcuzzo wrote:
| 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...
| roflyear wrote:
| This is just misinformation, I have worked with
| investment firms and family offices that regularly buy
| government securities.
| roflyear wrote:
| 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.
| kgwgk wrote:
| > 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?
| karatinversion wrote:
| 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...
| ikiris wrote:
| 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.
| [deleted]
| verteu wrote:
| 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.
| kgwgk wrote:
| 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?
| verteu wrote:
| 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.
| [deleted]
| b33j0r wrote:
| 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)
| dot1x wrote:
| An extremely interesting paper that puts into perspective a lot
| of investment "knowledge" shared at nauseom almost everywhere.
|
| > Investors have seen countless charts of US stock market
| performance which start in 1926 and end near the present. But US
| trading long predates 1926, and the foreshortened perspective
| that results from a focus on post-1926 data can be misleading.
|
| > The goal is to challenge shibboleths about the expected
| outcomes of buy-and-hold stock market investing, and to raise
| questions about the expected performance of stocks versus bonds
| over long periods.
|
| > Put another way, since 1928 dividends plus inflation accounted
| for 99.7% of the nominal wealth produced, as of 2008, by
| investing in stocks.
|
| > Total return measured on the century scale presumes an investor
| who never needs to spend the dividends or interest received. No
| real investor, individual or institution, has that luxury. And
| there is one class of individual investor, now of growing
| importance within the financial planning literature as the Baby
| Boom generation ages, for whom the total return metric is
| particularly malaprop: retirees. Once portfolio accumulation
| ceases with retirement, portfolio income must be spent to live.
| Under those circumstances real price return, over short periods
| lasting two or three decades, becomes an important metric. By
| that measure, an investment in stocks has been dicey indeed.
|
| ---
|
| Just to whet your appetite some more:
|
| > Figure 4 [1] illuminates how much of the long-term return on
| stocks since 1926 has been due to sustained high inflation on the
| one hand, and to the favorable enhancement from re-investing
| dividends on the other. Under the one depiction, the portfolio
| returned about 9% compounded, from near the high in the Twenties
| to near the low in the Oughts; under the other, only about 1.5%.
|
| > Few contemporary investors expect a multi-decade return on
| their stock portfolios of 1 2% per year. They have no reason to
| expect such poor results, because most investors have never seen
| a post-1926 chart of inflation-adjusted, price-only returns, and
| have rarely seen any charts extending back past 1896.
|
| [1] https://imgur.com/a/QCtugvC
| pedrosorio wrote:
| > price-only returns
|
| Why should I care about price-only returns?
| lkbm wrote:
| > 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.
| fsckboy wrote:
| > _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.
| lexapro wrote:
| 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.
| whoomp12342 wrote:
| a dividend is a payout of the companies earnings. rather, the
| portion the company has chosen not to spend on itself. That
| amount is divide up by how much % you own in the company. If
| you owned 50% of all the stock, you would directly receive
| 50% of their profits less re-investing come dividend time
|
| the stock price is how much people are willing to pay for
| purchase said stock.(consider market share when looking at
| price, because 2 stocks at $5.2 is the same thing as 1 stock
| at $10.5)
|
| so yes, from your gains perspective it is the same thing but
| the source of where the increase in your portfolio is
| entirely different
| MuffinFlavored wrote:
| > 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?
| dougSF70 wrote:
| > 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...
| flavius29663 wrote:
| > 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.
| pjc50 wrote:
| > 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.
| ghaff wrote:
| 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.
| autokad wrote:
| > 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.
| Invictus0 wrote:
| 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?
| danielmarkbruce wrote:
| TLDR: interest rates used to be higher.
| coliveira wrote:
| Until the beginning of the 20th century, stocks were viewed as a
| purely speculative investment. The idea that buy and hold will
| provide great returns is a modern one and is supported by the
| growth of the stock market in the 20th century.
|
| There is also the issue of survivorship bias. The SP500 and Dow
| Jones indices regularly discard the losers and add new companies,
| so we don't know the true results of holding companies for a long
| period of time.
| martincmartin wrote:
| > There is also the issue of survivorship bias. The SP500 and
| Dow Jones indices regularly discard the losers and add new
| companies, so we don't know the true results of holding
| companies for a long period of time.
|
| That's certainly true in marketing material of fund managers.
| But it's not true in honest academic papers, like this one.
| There's lots of data out that about total returns of the stock
| market, that takes into account dividends and survivorship
| bias.
| bumby wrote:
| Do you happen to know where to find historical data on such
| holdings? For example, how do I find the historical ETF
| holdings at a particular point in time?
| Kon-Peki wrote:
| 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.
| bumby wrote:
| Thanks, this is useful. However, I was specifically looking
| for information on the SPDR ETFs.
| Kon-Peki wrote:
| The reason all the stock market charts you see start in 1926 is
| because they come from CRSP data, which starts in 1926.
|
| If you are a student at a university almost anywhere in the world
| that offers an MBA or other advanced degree in business or
| finance, it subscribes to the CRSP data service with 95+%
| probability. If you are an engineering or a CS student, the
| university contract covers you! You'll probably have to talk to
| someone over at the business school, but they'll get you access
| for all your ML research needs!
|
| The main advantage over other data providers is that they publish
| their methodology and formulas, and have a full-time staff
| dedicated to data quality. Oh, and they're cheaper than everyone
| else (it's a service run by the University of Chicago instead of
| a for-profit corporation), so it has become the default academic
| data source. If you publish research using some other data,
| colleagues will want to know why.
| q845712 wrote:
| just a nit, but especially given the economics outlook advanced
| by and named for the U of C, the line between the University of
| Chicago and a for-profit corporation is both thin fuzzy.
| Kon-Peki wrote:
| Haha :)
|
| By the way, the story goes that back in the 1960s, 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 and it blew people's mind that
| such quantities of data could be analyzed in one go.
| compumike wrote:
| Figures 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...
| insonable wrote:
| 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.
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