U.S. stock market returns – a history from the 1870s to 2022 | Hacker News Reader

U.S. stock market returns – a history from the 1870s to 2022

themeasureofaplan.com

464 pointsgetToTheChopin428 comments

Since I don't see anyone else mentioning this:

The geometric mean (6.9) is all that really matters for investors, not the arithmetic mean (8.4) - the arithmetic mean under-weights the importance of negative years to long term performance.

For example, if the market is down 20% one year and up 20% the next year, the arithmetic mean will be 0%, but you'll be down 4% (0.8*1.2 = 0.96), which is reflected in the geometric mean of (about) -2%.

Depends, dollar cost averaging shifts things around. For a typical 401k style investor having down years mid career improves returns at retirement, but then increases risks in retirement.

The average investor also has less money to invest during down years though.

The “average” investor gets paid cash and not in stock.

The public tech company employee has less to invest because a large portion of their income is in stock.

The private tech company employee is screwed because statistically, they have equity that won’t amount to shit in a bull market let alone a bear market.

The average investor includes people who lose their jobs during downturns.

> The “average” investor gets paid cash and not in stock.

Not if they're unemployed, which is more likely in down markets.

With DCA you have the additional costs of keeping cash around. Unless you mean serial lump sum (investing when you get paid).

That's typically why people DCA.

Besides, isnt the opportunity cost is completely independent of the return you're getting from the sp500?

Serial lump sum is not quite DCA. Both involve a series of purchases.

The opportunity cost is the inverse of the S&P500 in that case.

Not completely as typical 401K investor would change their allocations from equity to non-equity.

No, the typical 401k investor does not change their allocations.

Target-date retirement funds automatically do.

For this hypothetical, I don't think it makes sense to consider anything but a typical 401k investor that only invests in the sp500. Thats all that we're tracking here.

How would that increase risks in retirement?

When spending down money you get the reverse of cost dollar averaging. In a good year you might sell say 1,000 shares but in a down year you might need to sell twice that to take out the same money. This means more of your shares are sold in down years than good years.

This is why people say to increase the bond ratio in retirement, but that also reduces expected returns.

It shouldn't if you transition to heavier weighting of cash/bonds as you approach retirement (which most people do and most financial planners advise)

Agreed. Using an assumption of 5-6% annual real total returns is more reasonable for financial planning.

I use a more modest 3.5% real return estimate. I'd rather wind up accidentally rich than accidentally poor.

I would describe 3.5% real as pretty reasonable, I would not even call it overly conservative

The geometric average return of the market is 6.9%, factoring in the re-investment of dividends and inflation (i.e., the real total return).

Based on this, I'd consider a 3.5% return assumption over 20+ years to be conservative.

Yep, long-term I'm okay at 3%, comfortable at 3.5%, happy at 4% and awesome anywhere above 4.5%. I find the benefit of going with a conservative plan is stress reduction during downturns.

Correct, because we're averaging together things that are multiplied, not things that are added. Arithmetic mean is rather meaningless here.

The arithmetic mean gives you a sense of the return you can expect by investing in the market for a single year.

When investing over multi-year periods, the geometric average is more relevant.

You can see the impact on this chart, where the average return (and volatility) drops over longer time periods: https://themeasureofaplan.com/wp-content/uploads/2023/01/Rol...

What really really matters is the Kelly criterion, or expected logarithm of wealth.

If you expect returns to be similar to the past, that would be mean(log(1+return) for every year).

Investors tend to think in terms of 1) volatility 2) exposure/diversification.

1) What _really really_ really matters is the Sharpe Ratio, as in "how much returns you get per unit of volatility".

The returns themselves are meaningless if not compared to the volatility to earn them.

Also, you want to discount the risk free rate (at least), as your benchmark.

2) The market as a whole is the biggest exposure you can have, you'd want to discount it as being X% of your portfolio

The Sharpe ratio gives you a good score if you lose everything (-100%) and then you gain a 20% return for 10 years.

But once you lost everything, there is no capital to invest, so the score should be infinitely bad.

Arithmetic averages are dangerous in geometric environments.

Use the expected log-return or the geometric mean instead of the arithmetic one in Sharpe's formula.

But maximizing log-return was proven by Kelly to be optimal, and you don't need to further penalize volatility.

Maxmizing log returns is very good in many respects. It has nice mathematical properties. It's not too far off from what people subjectively value. But it is an approximation. For instance, how upset would you be if you woke up to find your bank account was $0? Pretty upset I'm sure. Infinitely? Doubt it. Now some one gives you a single cent out of pity. Feeling a lot better? Hardly.

The subjective satisfaction we get from a certain amount of money is something that would take a lot of experimental science to figure out, and subject to change as society changes. How high up Maslows hierarchy of needs can you climb, and how long can you stay there until age brings you low?

Now where log returns really shine is if you make a very large number of similar bets. Thats where the asymptotic behavior dominates. But if you make a big once in a lifetime decision of whether to bet the farm on a new business idea, that's where you have to figure out your own values.

> But maximizing log-return was proven by Kelly to be optimal, and you don't need to further penalize volatility.

Unless you are risk adverse. Which it's probably rational to be.

1. Im not sure that’s what the Kelly criterion is but I didn’t look it up.

2. Arithmetic mean of log returns is the same as the geometric mean of returns. Indeed it’s pretty typical to work with log returns for this reason as adding is easier/better for computers than multiplying. This equivalence is easy to prove:

  gm(returns) = prod(returns)^(1/N)
  log(gm(returns)) = 1/N * log(prod(returns))
                   = 1/N * sum(log(returns))
                   = mean(log(returns))
  gm(returns) = exp(mean(log(returns)))

Where returns is a list of the multipliers to go from the values before/after the returns, eg it has 1.01 not 1%.

This is beautiful. I now realize both go to 0 if you lose all money (i.e. any one of "returns" as you define them is 0). Thank you!

you mean (as your proof shows) "is the same as the [log of] geometric mean of returns."

Yeah, I should have been more clear. The point is that you can convert between them without needing any other information (like the original values that were averaged)

Interesting, I am looking at (1+x) * (1-x) = 1 - x^2 < 1

Of course a country’s stock market will perform well as that country ascends to become the world’s dominant superpower.

The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.

To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.

Who cares about returns over the next 150 years? Even half that is excessive. Someone investing at age 18 might care about the subsequent 50 years.

It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments.

Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.

Keep in mind that the present value depends somewhat on the discounted future earnings, which by definition extends to the end of time. That being said, the associated time discounting heavily reduces the impact of earnings envisaged say 100 years from now (a 5% discount rate would mean ~13k USD in 100 years is worth about 100 USD now, and that's probably generous given historic market returns).

So, the US doing extremely well 100 years from now vs. the US doing very badly 100 years from now could have a non-trivial impact on the perceived value of US assets. I suspect that the large uncertainty about what the world will look like in 100 years means there is just some sort of seldom changing value baked into assets to account for this, but it nonetheless exists, and could change if there was some huge geopolitical shift.

And before you mention anyone on earth would be dead in 150 years, yes that's true, however you can always sell it to someone later on who will be alive in 150 years (or sell it to someone who can later sell it to someone etc. etc.).

Is that actually how it works? Money has to go somewhere regardless of future. Whatever looks the least bad at present is in demand, regardless of what the returns are. Inflation was above tbill rates yet people bought because they don’t have better options.

It’s like food. Food in 100 years does not help the need for food now.

Food perishes faster han equity indices.

If there was a futures market in foodstuffs that basically keep forever and is cheap to store (honey?) you would see that the expected price of that food in 100 years would have some effect on the current price.

In theory maybe, but I'm not sure this is right. The further out you go the more worthless expectations on returns become. Who actually has high confidence in a price model projecting 100 years out? What organization has the conviction to execute on this 100 year plan instead of signals with real correlation for returns over 1, 5, 10, 20 years?

Why is "reserve currency" the central issue?

Also, the US stock market, US Dollar and US economy/gdp aren't hard linked to one another these days. The companies listed can be selling to non US markets, employing internationally, founded internationally. They're just listing on the US stock market because well.. that's where the stock market is. The US could, in theory, become more or less popular a stock market regardless of its currency's popularity.

Meanwhile, both the Euro and RMB have similar size markets backing their currency. Neither one is currently trying to displace the USD. I think the importance of owning the international currency is somewhat speculative.

The reserve currency built atop the petrodollar system produces a cycle of the rest of world needing to acquire dollars to trade for commodities and most other commerce around the world. Because it gains this reserve status, it has stability and confidence, and thus since countries need it to buy input commodities and energy, they acquire foreign exchange surpluses by selling goods to the US and running trade surpluses. Since they have stockpiles of dollars, it is conducive that these dollars are also used for trade of other goods and also the creation of borrowing and lending demand in dollars outside of the US.

If countries then acquire dollar surpluses by running trade surpluses with the US, the US by contrast has a trade deficit. This is equivalent to having a capital surplus for the US. It means excess capital is funneled back into the US into the capital markets buying stocks and bonds.

This is maybe a chicken and egg phenomenon..is it the demand to invest in the US creating a capital surplus that creates the dynamic whereby the $ becomes reserve currency and the US runs increasingly large trade deficits? Is it the military/political power that creates all of the rest? Probably all of above. But in any case the reserve currency system has at its core the financial markets of the US that the rest of world invests their surplus into, incentivizing them to produce in excess and trade real goods and work with US in exchange for paper IOU's that they can invest into the US markets.

A big aspect of this $ financial/trade system isn't just the $ as currency itself but the unique and important position of US treasury debt as the premier reserve asset that countries store their surplus and forex reserve in, and which is the center piece of the eurodollar[0] lending markets.

[0] https://www.investopedia.com/terms/e/eurodollar.asp

Trade deficits and capital surpluses go hand in hand. This is easy to see. If the value of your imports exceeds the value of your exports (i.e. you have a trade deficit), the excess imports must be financed somehow—either borrowing money abroad or selling assets (such as equity) to the rest of the world. This results in a net flow of money into the country, i.e. a capital surplus.

The only problem with that is that because of the sanctions the Euro demand has plummeted and all major economies outside the west are dumping their dollar reserves and are moving to non dollar settlements, Saudi Arabia and the GCC just signed a massive cooperation deal with China and some other places have pegged their currencies to the Ruble. Yes the dollar is strong and will stay for a while, but to believe that nothing has changed in the recent past is to be wilfully oblivious of all the idiotic policies that have weakened the Euro and the Dollars position in the world.

> This is maybe a chicken and egg phenomenon

Unlike the chicken/egg situation we know precisely when this system was born: the Bretton Woods Conference, 1944.

To some degree of course it recognized what was happening anyway (uh oh, chicken/egg is back) but rather than letting things evolve it built upon emerging practice to build the modern global financial system (basically still in place despite further evolution, like floating currencies).

Yeah, China has already indicated that it would prefer the ability to implement sudden, nearly total capital controls rather than be annoyed with the day-to-day of a reserve currency.

Stock markets are natural monopolies. Liquidity begets liquidity. What would cause companies to choose other exchanges and what stops the dominant exchanges from adapting to changes that threaten its liquidity advantage.

Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?

> Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?

It would reduce liquidity. Equity prices would fluctuate not only on buy/sell basis but exchange rates. Sure, computers could figure all that out these days but what's the advantage? Overwhelmingly, equity buyers and sellers (not "traders") buy in their local currency because they use the money to live in a local economy.

Companies list in other countries for access to those countries' buyers. What would be the point of Shell listing in Euro on the NYSE? They want to list in dollars. Nobody outside Nigeria lists on its exchange but local companies do because local people understand the companies and everything (both their operations and their stock) is in naira.

So if you want to be an exchange in a different currency, just buy a local exchange. NASDAQ did try to buy the London Stock Exchange, though I think it fell through.

Or we see a contraction in globalization in general in which all economies shrink.

It's entirely reasonable that we could enter a period of long, slow decline across the board. Especially as we continue to push the limits of natural resources and global supply chains.

For example suppose the US continues to move its push to return chip manufacturing to the US. This might mean both that US chip manufactures have a more healthy future than other more fragile tech companies and that they shrink in size. We could see a return of manufacturing to the US which leads to continued employment in US labor for while also meaning that labor force gets paid much less.

We're already starting to see evidence of this happening.

The concerning thing is that I'm not at all sure that our incredibly debt dependent global economy, which assumes future growth, can really handle a gradual contraction to a more sustainable economic structure.

Either way, assuming up is the only way for the market to go is a very naive assumption, but one nobody is happy questioning.

> a gradual contraction to a more sustainable economic structure

Why do you assume that it requires a contraction to reach a sustainable economic structure?

What prevents the economy from growing for the foreseeable future while also becoming more sustainable at the same time?

Before answering your question, you need to first be clear what "sustainable" means. For me sustainable means that we can continue to life as we do indefinitely.

Our current economic structure, due to its reliance on credit, requires perpetual growth and development in order to pay off today's debts. Debt in all forms has been growing increasingly and rapidly in recent years.

Infinite growth is not possible on a finite planet.

In many areas we are already seeing the limits of growth, from strains on oil supplies to global population growth starting to slow down. This is already, today, putting a strain on our economic systems.

Since our current way of life can only be sustained by future growth, it is by definition not sustainable unless you sincerely believe growth to be without limit (this would require near term interplanetary travel and energy advances such as fusion). As mentioned, we are already seeing system strain suggesting we are hitting limits.

Contraction is the preferable path of the two realistic alternatives, the other is complete collapse.

How do you propose the economy growth for the foreseeable future and becoming more sustainable?

>We could see a return of manufacturing to the US which leads to continued employment in US labor for while also meaning that labor force gets paid much less.

Interesting! Why is it happening? Shouldn’t labor earn more in this scenario?

Depends. Manufacturing in the US implies high automation. For those who maintain the machines there is a lot of money, but there are far less jobs and in turn far less in total in labor.

Though I suspect there is more need for such labor than people who can do the job. Hard to say, but there are a lot of things we haven't automated yet.

> Someone investing at age 18 might care about the subsequent 50 years.

With a gradual decline in exposure to equities over time.

https://www.google.com/search?q=what+asset+allocation+should...

This is terrible advice. It’s more complicated than this and depends on your situation (age, social security, pensions, tax deferred account timing) but generally you want less stocks when you enter retirement but gradually going back up in retirement.

> but gradually going back up in retirement.

Why would you want to be more exposed to riskier equities (a la they are down 20% in the past year) when you are 65 years old and have no income other than dividends/bond yields?

Why going back up in retirement?

1. After what happened to Russia every planner in China has "the US government seizes our assets" as a plausible in the next 50 years.

2. It is implausible that the US will ever pay back its foreign debts in real terms. Anyone who lends to them will end up with less stuff in total.

3. We live in an age of computers and pervasive digital communication; things can happen a lot more quickly these days than in the 50s.

4. There is a consistent trend of dropping energy security in Western countries.

This is no time to be forecasting assuming things will happen at a comfortable pace. People should have contingencies ready in case something unprecedented happens. It is tense out there.

Actually, over nearly the past two decades, in the US, it has been the opposite of a “consistent trend of dropping energy security.” Considered like a trade balance, since 2019 the net energy balance in the US is positive.

Almost all wrong, except #1. #1 is a definite risk, and a more interesting one than just Russian and Chinese "planners." Otherwise your note is nonsense.

2. No sovereign government debt is paid down in real terms over the very long run (this doesn't have to be so, but the data). So why should a non-national buy it?

If you buy US debt you get an asset that is supremely liquid and extremely unlikely to default. Over shorter terms from right now it appears likely to outperform other sovereign assets.

In very short terms at various times you can make money trading marginal countries' debt (even Argentinian!). But you take on a big risk premium for that!

3. There is so much analysis of technological advances of the 20th century that I won't even bother to try an summarize. WWII began with horse drawn artillery and ended with jet aircraft and ICBMs. My own grandmother was alive from kitty hawk to moon landings and robots spread out through the solar system. Things move frustratingly (for me) slowly these days.

4. Arrant nonsense, with the trend pointing the other way.

> After what happened to Russia every planner in China has "the US government seizes our assets" as a plausible in the next 50 years.

Only if they plan on doing something akin to starting a war against Ukraine.

What kind of contingencies? Money in mattress?

Those lending to the US government are doing so by purchasing US Treasury bonds, which have due dates and earn interest.

Based on the credit rating of the US government, they will certainly not end up with less in nominal terms.

100-year bond spot rate: https://alfred.stlouisfed.org/series?seid=HQMCB100YR&utm_sou...

>Someone investing at age 18 might care about the subsequent 50 years

Those 50 years are part of the next 150, and are no easier to forecast. Most market projections are for numbers ~7% annually, but periods worse than that would drastically alter investing plans, and hence social infrastructure planning.

That is why https://www.firecalc.com/ exists. The idea is that you save enough that over all the possible starting years, you would end up with money instead of broke, for the length of time you think you'll be alive.

> Most market projections are for numbers ~7% annually,

Too lazy to web search for an answer, but are those real returns? (i.e. inflation-adjusted).

> Someone investing at age 18 might care about the subsequent 50 years.

I get what you are saying, but your math here is a bit off.

50+18 = 68.

People generally can live longer than 68 years old, If we go out on longevity and assume people can live to 100 or 120, then it's more like 100 years.

Your next thought is, but people will retire before/around 68, fair enough, but they stay invested generally the entire rest of their lives.

So if the US dominance ends in the next 100 years, then today's teenagers might need to care about it. People in their 30's or 40's probably don't though.

The next 150 years, you are right todays teenagers might not need to care, unless many/all of our aspirational longer living goals happen.

No, this is poor investment advice. The closer you get to retirement, the more your money should be in extremely short term, non-volatile investments like T-bills. You should not be invested in the stock market, because the risk is too high that you could lose a lot of your savings just before you really need it.

It should give pause to people who think that the stock market is some sort of science. Macroeconomic conditions and policy influence this stuff.

My understanding is that development in some modern areas is exponential. This is the reason why China grew so fast. So a case could be made for faster timelines. US may not slow considerably but it will stop leading and being the only one.

Your assumptions presume that the pace of historical developments is the same as it was in the late 19th century, which seems clearly untrue. The rate that these things transform today may be breathtaking.

How can anyone assume the next 30-50 years of the US economy will be anything like its rise to superpower over the last 150 years.

Sure, but how can anyone assume it won’t be?

If you’ve been alive long enough you’ve realize the “end of US dominance” has been in headlines since the 60’s.

"The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150."

No, I think the question is more subtle ...

Will the relative power and influence of the US grow similarly.

... and I think that may be a very good bet.

The three closest "competitors" - the Eurozone, China and Japan - are, in their own unique ways, dysfunctional basket cases:

Europe's northern savers and taxpayers have to pay for southern workers to retire at 60 ... and southern workers need to eat benefit losses to avoid further (br)exits. This is a not-insignificant economic and cultural mismatch and the results of even minor adjustments are riots in the streets[1] ... or boring, orderly referenda[2].

It is unknown whether the CCP can survive any meaningful slowdown in growth and whether much of the growth of the last 10-15 years (enormous empty cities) was substantive or useful at all.

Japan is undergoing civilizational and cultural collapse.

So ... while there is much dysfunction - both economically and politically - in the United States, it is an enormous, resource rich country that can exist wholly independently from the rest of the world.

It also enjoys absolute control of the worlds oceans and brutally dictates economic and geo politics[3].

In a world of troubled and fraught investments, the US is probably the least troubled and fraught.

[1] https://en.wikipedia.org/wiki/Yellow_vests_protests

[2] https://en.wikipedia.org/wiki/Dutch_withdrawal_from_the_Euro...

[3] https://en.wikipedia.org/wiki/2022_Nord_Stream_pipeline_sabo...

For a civilizational basket case, Japan's GDP/capita has held up pretty well. Their industrial output is very strong for a country with sparse internal resources.

Europe's problems are not unlike the U.S. internal problems where the tech and financial centers mainly on the coasts subsidize the rest of the country. The difference of course is that the states of the EU can exit, where the American states cannot. I'm not sure which situation is preferable.

China is a black box, but so far recent history has indicated the populace will go along with a lot of pain to avoid chaos.

Japan's real limitation here is primarily that they're relatively small (1/3 the size of US/EU), and their most "aligned" neighbors (Korea, Taiwan, Phillippines) don't like them very much. It's not like you could reasonably fit many more people on the islands as it is.

US wealth distribution is much flatter than European. The GDP/capita ratio between Mississippi and Connecticut is less than 1:2, while for Germany to Hungary it's more like 1:4.

China is... China. You can't call yourself the Communist Party and run the global financial system. The world can only tolerate so much contradiction.

The open question now is whether the dollar can be dethroned by nothing: can a basket of currencies become the default reserve?

My guess is the world can tolerate it as long as everybody is making money off it. When that stops, the contradiction might seem intolerable.

The world needs a default reserve that's not tied to any single central bank. For all the upsides there are also real downsides for the US having its currency as the default reserve.

Taiwan and Japan are pretty close, actually. You'll find few people in Taiwan that dislike Japan. The rest, yah.

> Europe's problems are not unlike the U.S. internal problems where the tech and financial centers mainly on the coasts subsidize the rest of the country.

Perhaps, but you could as easily make the argument that the interior subsidizes the stomachs of the coasts. That seems more like a symbiotic relationship than the parasitic one you seem to be implying.

>may be a very good bet

Trend last few years is PRC closing gap and approaching parity in indicators like GDP (already exceeded by PPP), % of global gdp / trade, science and innovation indexes, value chain upgrades etc. Even PRC military development and diplomacy is sufficient to get countries hedge / not commit to US alignment, which was unthinkable 10+ years ago. IMO US will find it difficult to maintain relative "lead" when, in the words of state department, "China is the only country with the economic, diplomatic, military, and technological power to seriously challenge" US order. That said, I think US has headroom via dictating economic and geopolitics within her relatively wealthy bloc and grow at the expense of others.

>It is unknown whether the CCP can survive any meaningful slowdown in growth and whether much of the growth of the last 10-15 years (enormous empty cities) was substantive or useful at all.

Western fixation with PRC real estate waste as proxy indicator of China (econ) collapse is particularly stupid. It's like suggesting US who spends ~20% of GDP on healthcare (approximately PRC real estate) with suboptimal result is spinning development wheels. Same with PRC wasting a few trillion in suboptimal real estate when significant (majority) resources being invested to bring up other (above) indictators that has substantively contributed more to PRC "comprehensive national power". Like US isn't initiating unprecented PRC containment policies because of a bunch of empty of housing units.

> whether much of the growth of the last 10-15 years (enormous empty cities) was substantive or useful at all.

I don't think anyone who has seen the development in China over the last 10-15 years first-hand would say this.

There has been massive development in nearly every area, both in quantity and quality. Just to give one example, anyone who follows the scientific literature in just about any field will be aware of the massive increase in high-quality publications coming out of China over the last decade.

There are one or two examples of "ghost cities" (though most supposed "ghost cities" actually become populated over time), but that doesn't negate the massive, real development that is visible everywhere in China.

Are you sure that southern workers retires at 60? I don't think so ...

If they are sure, they are wrong. Spain and Sweden retire at the same age. Italy, Greece, Denmark and Norway as well. [1]

Yes, France retires at 62 but that'll change very soon...

Writing that the "north pays for the south" by looking at the GDP per capita instead of the GDP is... naive. [2]

[1] https://en.wikipedia.org/wiki/Retirement_in_Europe [2] https://en.wikipedia.org/wiki/List_of_sovereign_states_in_Eu...

The French rioting is just another Tuesday.

China is also expected to see population collapse. They are rapidly aging and there’s no sign that that is reversing.

IMO population "collapse" or demographic "decline" not right lens for unevenly developed country with massive population and high import dependency especially in context of "relative power". TBH it's surface level PRC collapists narrative.

What will happen (by design or not) is PRC demographics is being "strategically optimized" with the greatest demographic uplift/upgrade in recorded history. Roughly replacing 2 low skilled, under-educated workers with 1 skilled worker with additional automation. Every ~10 years for the next few decades, PRC will be upgrading / swapping the human capita potential of 1 Nigeria for 1 Japan, it's less people, but much more productive people. With PRC pop base effect this is still multiple more educated labour pool per year than US or other blocs can generate with immigration, and 100s of million more in net talent. Less people also alleviates import dependency, PRC with 1B (400M less) people would have substantially more strategic space to operate. It works towards close relative power potential. CCP wants to smooth out the pyramid with more births for better managed transition, which structurally/culturally PRC with some of the highest house hold savings rate and minimal expectation for safety net is positioned to weather, but long term PRC comprehensive national power is best improved by having less net people, with more % skilled people.

I think this is a pretty optimistic take. I know there's a constant barrage of articles these days about the demise of China, but it's pretty hard to make the case that such a drastic decline in population is a good thing for their economy or geopolitical power.

Yes the Chinese population is becoming more skilled, but I think you're underestimating how much of a drag on the economy and aging population is. Old people don't innovate and require much more healthcare spending. They also cause heavy burdens on their children/grandchildren who must take care of them (see the 4-2-1 family structure).

There's also a lot less juice to squeeze out of urbanizing the population which is what drove a lot of GDP growth in the past few decades. About 65 percent of the population is urban now and the rate is starting to level off.

> Japan is undergoing civilizational and cultural collapse.

Certainly doesn't seem this way when you visit Japan. Sure, they haven't experienced wildly growing excessive consumption like some American states in the past couple decades, but their society is far from undergoing any sort of collapse.

> Europe's northern savers and taxpayers have to pay for southern workers to retire at 60

Using the yellow vests as representative of "southern workers" makes me doubt how well you've researched this answer. Paris is hardly in "southern Europe", and the rest of the southern European countries have retirement ages comparable to those of the "northern savers".

([3] link)

Are you implying that US sabotaged Nord Stream?

Yes. Or that it was sabotaged with our blessing.

It was a Keyser Soze move that basically destroyed Russias bargaining position.

At the same time, it was an enormous fuck you to EU citizens and, in particular, Germany: "Oh yes you will buy our gas ..."

It appears to be panning out in a non-destructive way for the EU citizenry as they muddle through this winter but it was not obvious that would be the case and this (relatively) benign outcome could not have been predicted.

If I were an EU citizen (particularly a German) I would be upset. Even as an American I am disturbed ...

EDIT: You know that thing ... that crazy thing that Dick Cheney said in that interview[1] ? About how there is no reality and reality is whatever we say it is:

"We're an empire now, and when we act, we create our own reality."

... every day that goes by I become more and more convinced that he could be right. NS2 sabotage makes it hard to argue with him.

[1] https://www.theatlantic.com/daily-dish/archive/2009/04/were-...

> "We're an empire now, and when we act, we create our own reality."

There is an argument going on in the thread about empires size and distance from the capital.

The person who makes out the US is an empire which controls a bulk of the globe is getting down voted - I think you are needed there.

https://news.ycombinator.com/item?id=34275668

Another one of those interesting discussions that the news seems to have forgotten. It seems Ukraine had the most to gain, but from my limited understanding it's not so easy to robotically place explosives at the bottom of the sea in a precise, destructive manner unless you have a really well-funded naval force.

It kind of reminds me of the polonium poisoning that has become a Russian signature move. Despite not taking credit, the number of actors who have the capability to do it is so limited that it's basically outing them regardless.

No one seems to want to bring up the press conference where Biden said that if Russia invaded Ukraine there would no longer be a nord stream pipeline. When asked to clarify he said something like " oh youll see"

Everyone just forgot that happened. Strange.

More interesting that power and influence, which is an open question, is demographics. There is little to be done about shifting world demographics. Even if the us stays the premier world superpower, can that offset massive declines in the amount of people producing and consuming everywhere? While the us may actually be okay with shifting demographics (Zeihan has some interesting stuff on this), most major economies are facing rapidly declining populations over the next couple of decades.

Underrated comment. You can’t print human capital, and if fertility rates are declining everywhere, every nation is competing for a shrinking young, productive talent pool.

The US is well suited to solve this problem with more immigration, we already have more incredibly talented people banging on the doors then our nightmarish naturalization system can take.

Convince the electorate. People are challenging.

More importantly every nation is competing for a shrinking pile of consumers. Old people can be extremely productive, but they don't buy nearly as much on average, so all that productivity has nowhere to go if there are fewer young people to sell to.

> There is little to be done about shifting world demographics

Hmmmm immigration. That's how fast growing powers have always done it.

You can't add 20+ million imigrants to Germany (and that's what's they'd need over the course of the next decade or two in order to avoid demographic collapse) without massive social problems and/or Germany no longer being Germany.

> without massive social problems and/or Germany no longer being Germany

This is where America wins. There is no American ethnicity. There may be, historically. But mythologically: no.

You can if you force every immigrant to be educated. Germany's problem is that their immigrants are not. There are more than enough educated people that want to immigrate to America, start with allowing every international college graduate to stay and your most of the way to solving the demographic problem.

Even still, the US is much less homogenous than germany. A variety of cultures is not a problem.

Saying 20m is meaningless unless you mention a time scale.

Demographic collapse won't cause "massive social problems and/or Germany no longer being Germany"?

That’s why I specified world demographic decline. It’s hard for everyone to get large amounts of immigration when there are just less people immigrating each year.

If population growth is the only way for our capitalist system to survive we're screwed.

Sad that nobody has been able to come up with something better that doesn't involve "infinite growth".

I’m actually not concerned about demographics. With coming automations and workforce becoming irrelevant societal changes are going to be so tremendous, that age of the population is not going to matter.

Fair point. To add some context though, this data is based on the returns of the S&P500 index.

Companies in the S&P500 index are based in the U.S., but most of them earn revenues internationally as well.

"Roughly 40% of S&P 500 revenues are generated outside of the U.S., and about 58% of Information Technology company sales were sourced from abroad."

Source: https://www.globalxetfs.com/sector-views-sp-500-sensitivity-...

So, the performance of the U.S. stock market in the next 150 years will not rely solely on U.S. specific economic growth.

I've always wondered, why do American investors get to benefit from companies like Apple? Why does Apple choose to be a U.S. company? We're obviously in competition with other countries globally in terms of getting companies like Apple to give us their tax dollars.

I know Apple does this https://en.wikipedia.org/wiki/Double_Irish_arrangement#:~:te....

I just wonder, can they really not find a more favorable country to route the gross of their revenue through?

The maturity and stability of the US stock market (by which I mean institutional and structural stability rather than price stability) make it the most frictionless, transparent and predictable place to raise equity capital. Add that dollars are also attached to a broad domestic market and the US corporate form is strongly entrenched in a culture of rule-of-law and there's a compelling case to create and maintain your company in the US.

> The maturity and stability of the US stock market (by which I mean institutional and structural stability rather than price stability) make it the most frictionless, transparent and predictable place to raise equity capital.

The number one way that Apple benefits from this is giving shares to employees as compensation, right?

They aren't commonly "financing" projects with stock as far as I understand it. aka, they aren't diluting existing shareholders by issuing fresh shares to take advantage of the share price.

Since they aren't doing that, how do they benefit financially from their share price?

I think that it's because America is such an important market. Compared to Europe, Americans are richer and they all speak the same language. Many European companies struggle to expand from their home country to other EU countries.

Do you think that people outside the U.S. cannot invest in Apple stock?

No, I'm saying why does Apple choose to be "home" in America.

Didn’t Apple already move to Ireland for the tax breaks?

Nominal Swedish stock market return 1879-2012: 10.9% arithmetic mean, 9.0% geometric mean. Real return: 7.9%/6.1%. And Sweden isn’t really the world’s dominant superpower. https://www.riksbank.se/globalassets/media/forskning/monetar...

Sweden, Switzerland, and the US are obvious outliers. Their economies have been abnormally stable, because they have not faced revolutions, civil wars, foreign occupations, and other forms of widespread destruction in a long time.

I’m not sure that’s it. Sure, Norway was invaded but it was a pretty “benign” invasion in comparison to what happened to others. Same with Denmark. Would be interesting to see their stock market returns.

The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.

It does not need to . What matters is how much profits large companies are earning. There is no indication that profits are slowing. Even if GDP only grows at 2%/year, if multinationals generate 10% annual profit margins, that is $ that must still go to investors even if GDP growth is much lower.

When you compare foreign markets to the US, the US still comes out ahead by almost every metric. There is little indication to suggest this will change. Every problem that the US has, other countries have worse. So relatively speaking ,the US still will be ahead.

> The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.

I don't think that's required. Most of these analyses use US stock data because it's so easy to gather compared to international data. The do trends hold internationally, but the magnitudes are reduced. So if you think the US will regress closer to the international mean (and I'd agree) then you can use things like the shape of the bell curve, just not the height. And indeed, this bears out if you look at the markets of the UK or most of the EU. Pretty much any reputable adviser will tell you that that's the consensus, that future returns will probably be lower for the next few decades than they were for the last few. (Usually you see this in the media amplified to a more ridiculous version but that's modern clickbait reporting for you.)

There are other possibilities like we could stagnate for 3 decades like Japan. But yes, that's investing, that's the nature of the bets you're taking.

I'm having trouble finding the quotes but around the turn of last century British economists were looking at the US's explosive economic growth compared to the UK and attributed it to the US having the equivalent of a sudden injection of capital in the form of a whole continent full of free real estate. That is, they reasoned that the UK's growth was limited to what they could do on their existing, mostly already owned and developed land but the US had more physical space for the balloon to expand into. They reasoned that soon that would happen though and the US would grow to fill that space and eventually its economic growth would slow down closer to the UK's. That clearly didn't happen then. I don't think the lesson is the US is exceptional and will continue to outpace the world forever, but I do think that a lesson is that predicting this stuff is hard and reasonable-sounding ad hoc hypothesis don't always bear out.

> The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.

Over the next 150 years I have no idea. But over the next 30-50 then almost certainly. No other country is even close and most seem quite comfortable with the global state of affairs all things considered. USA hegemony has created a stable world where the vast majority of people are far better off than their ancestors. It isn't perfect of course but there's no reason to think anyone else would do better. Especially when compared to the previous tenant, Europe.

Just invest in a world index. See for example https://curvo.eu/backtest/portfolio/msci-world--NoIgsgygwgkg... —> minimum investment horizon.

Of course the whole world could go into a multi-decades-long recession, but then we’ll have much more serious problems anyway.

I always hate this “If it doesn’t work we have much more serious problems” attitude.

If the world did go into a multi-decade recession, what “more serious” problems would you have then your investments doing poorly?

You might answer things like “ buying food due to shortages” or something, but surely whatever problem you name, being more rich is going to solve it?

Now you can invest on the thesis that this isn’t going to happen, but to argue that the whole concept of investment is useless if it does seems very suspect to me.

Okay, let’s put it this way: There’s no strategy that avoids all risks. You have to balance risks and possible gains. You can balance the risk of investments in the stock market by allocating part of your money to other investments or stores of value that you believe will do better in the scenario where the markets go down long-term. In other words, diversify and allocate according to your risk aversion. This being said, a world index provides a maximum of diversification in the equity market.

Different scale of seriousness. If the whole world goes into a recession there is a big difference between food shortages that you can buy your way out of with cash and food shortages that come as a result of societal collapse and money being worthless.

Being rich only matters as long as your investments/assets hold any value. If truly serious problems around your investments go to 0, your assets are only worth something as long as you can maintain control of them (police won't be around, nor will judges be) and even then your car will be worthless without gas.

It all depends on what meaning a person assigns to "serious" in this context. Personally as long as being rich solves my Problems I wouldn't describe any situation as serious.

> Being rich only matters as long as your investments/assets hold any value.

Also, as long as poorer people are not after you and your properties (and your life, even) through a revolution, which revolution could be caused by world-wide economical and societal crisis (if not a revolution then maybe a civil-war where the rich are of the wrong ethnicity etc)

If everyone is in a recession, then no one is in a recession.

Therefore investing mechanically in the whole world might be a safer bet. Other than currency risk, home bias investment never felt like the optimal approach to me, even if your home is the world’s most powerful economy.

> The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150.

> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.

This is why it's suggested that unthinking mechanical investors invest globally, not just in the US. For example, VT, a single set and forget index fund has 40% international exposure. That's to speak nothing of the S&P 500 companies that do business internationally.

https://www.morningstar.com/etfs/arcx/vt/portfolio

Your point is valid - we shouldn't take single-country risk in investing. Assuming you believe the world as a whole will get more productive and value creating, globally diversifying your stocks is the answer.

As an example that supports your point, the Japan stock market (Nikkei) peaked in 1989 and STILL has not returned to that high.

However, even if you were incredible unlucky and had bought in at the 1989 peak in Japan, if you had an internationally diversified portfolio, you would be OK. E.g. a 30/30/20/20 Jp Stocks/Intl Stocks/Jp Bonds/Intl Bonds portfolio purchased in 1989 at the Nikkei peak would have more than doubled by 2014 (see here: https://www.bogleheads.org/forum/viewtopic.php?t=265807 and also https://www.afrugaldoctor.com/home/japans-lost-decades-30-ye...).

> Nikkei) peaked in 1989 and STILL has not returned to that high.

Also, the FTSE 100 has been almost flat since the financial crisis, so basically just a little over 10 years. It was at about 6300 in the first half of 2013, it's at ~7700 now, a ~22% return over 10 years is nothing to write home about. For comparison the SP500 was at ~2300 in the first half of 2013 vs ~3800 now, a 66% return. And that's after last year's 23% decline.

If you continued to invest in Japan throughout that period after, you'd be up today. The only case you were forever screwed is if you really aren't pouring more money into that (e.g. retirement).

I think about this a lot when you consider the world's largest companies today aren't stocks but sovereign wealth funds and oil reserves. Similarly in days past they were other state-owned entities like the East India Company.

The S&P 500 is not everything there is to be had...

A long time ago, naive me learned that tech companies also invest their money and that those returns count toward their valuation, and that seems wildly backwards to me, but I'm an engineer, not a financial expert.

I find the inflation as a variable very interesting. Countries that don't have strong economies generally tend to have higher inflation. So we may continue to see the stock market continue to rise indirectly due to inflation but the net return would be much lower.

You can only evaluate returns compared to the risk-free return (ie treasuries) - and favor treasuries cause less variance.

Stock market success depends entirely on when in history you got in and got out. When it comes to US dominance over the next century - who knows. I do trust in Fed interventionism and willingness to print money - so that certainly favors stock market investment.

Personally I find stock market is too high a variance and I prefer not speculate with money I can't afford to lose.

Buffet himself said their biggest peak to trough was 50%. Fine if you're already rich and investing a fund. Not so great if it's kiddos college money.

> Of course a country’s stock market will perform well as that country ascends to become the world’s dominant superpower.

There is probably more at play too. The number of banks, for example, has been declining steadily over time [1] as has the internet allowed single corporations connect to more buyers (nationally and internationally). Just think of all the local stores that Amazon has displaced.

[1]: https://www.stlouisfed.org/on-the-economy/2021/december/stea...

> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.

If things go badly then the money I would have from not investing "mechanically" would probably be as useless as the investments. If everything is going to decline continually it seems the greater reward will almost always be in the investment. This also assumes you only invest in the current world superpower, seeking global diversification would probably be wise if you see a major change in polarity.

Rumors of our impending collapse have been, let's say, exaggerated. I wouldn't bet against the United States over the next 30-50 years, at least.

It's too hard to swallow for most people but you're right. There are significant headwinds coming ahead for most markets whilst productivity gains have stalled. See Robert J. Gordon's paper "IS U.S. ECONOMIC GROWTH OVER? FALTERING INNOVATION CONFRONTS THE SIX HEADWINDS".

I really think millenials should consider hedging their bet, maybe even spend 100% of their income.

How would spending 100% of their income be hedging their bet?

I meant "or", either hedge their bet OR spend 100% of their income (or a larger % of their income) beyond some safety cushion.

>> To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.

Maybe, but this describes the investment strategy of pretty much every index-based fund and they've been the big winners over a long time frame. Why do you care what happens to a market 100+ or even 50 years from now?

I don’t think we were much of a dominant superpower until after World War 2. Lots of Europe was decimated but our infrastructure wasn’t and we also won the Cold War . We had large factories created also.

If some other superpower does come around you could just try to find a foreign index fund and adjust your investments.

Along with a 50 year bull market in bonds where yields have dropped nearly every year (along with inflation).

It's weird how most of the return from bonds comes not from yield but from capital appreciation [1], which happens because yields are dropping. There's something perverse and circular about it: "Make sure you buy your collectible widget today! It'll go up in value, because next year's widgets won't be as good! Prices only go up, because everything's downhill from here!"

[1] Actually, is this literally true?

About [1]: I'm wrong. If you look at TLT in TradingView, adjusted for "dividends" vs. not, from 2003 to 2019 you see nominal gains of about 150% (with) vs. 40% (without). So most gain is from income. That's ignoring tax.

Would also be good to compare to CPI to understand real returns. Or whatever other number seems to be a truer measure of inflation (house prices, for example).

yes it has been true the last 50 years, as market rates go down the existing bonds become more valuable. But it can't continue forever. https://www.macrotrends.net/2016/10-year-treasury-bond-rate-...

I’d argue the average person’s investing window is more like 30-40 years, not 150.

And even then, you don’t have to be the dominant superpower to see a rising stock market. Plenty of examples of smaller countries who have seen substantial market gains.

Agreed. At the turn of the century, Argentina was a similarly prosperous country to the United States.

I’m sure given an investment in Argentina’s stock market in 1900, it would have now been lost many times over.

I would argue that borders are irrelevant. Large multinational companies generally list on US stock exchanges.

For example, Spotify is a Swedish company listed on the NYSE.

This has the causality backward.

The qualities of the U.S. that helped it become a superpower, also help it have a high-performing domestic economy.

I get what you're saying about "mechanically" but "cargo cult" does not work as an analogy here.

Smart people invest globally. I have no illusions that American billionaires care about borders or governments.

Actually it looks like the US is already on the way of demotion from a global superpower to a regional power. There is no single country which comes as a replacement, but a multipolar world order instead. Many countries, mostly asian are emerging.

This is an analysis of U.S. stock market returns over the past 150 years.

A few insights:

The average return of the U.S. stock market has been 8.4% per year over the past 151 years (1871 to 2022); this is the "real total return" reflecting dividends and inflation

While the U.S. stock market has trended upwards over time, the market has declined in 31% of all years on record (47 years out of 151 years in total); for example: in 2022, the U.S. stock market dropped by 23.3%

The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%)

In other words, the stock market has never declined over any 20-year time period!

Sources: Professor Robert Shiller and Yahoo Finance; note: the “U.S. stock market” refers to the S&P Composite index from 1871 to 1957, and the S&P 500 index from 1957 until today

> The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%)

You'd expect something like this. For a normally distributed iid, the annualised volatility of returns over n years scales as sigma / root(n). So if your one year vol was 10%, the annualised vol over a 20 year period would be 10%/sqrt(20) = 2.23%.

Are they normally distributed?

I don't think normality is required -- the sqrt(n) scaling factor comes out of variance laws and the definition of the mean.

It should be true for any distribution that has a variance, and the 150-year historic return certainly has a variance.

Almost, but the distribution has slightly fat tails.

if I invest for say 10 years with a conditional exit/hold strategy at tne end (i book profit and exit if I am in green, or decided to wait up to 5 more years till i turn green / with a minimum threshold) ...would that flexibility in investing strategy bump up my annualized returns (and presumably significantly reduce negative returns)?

This sounds at its core like a "wait until I've made my money back" strategy. And yes, per definition you're guaranteed to make your money back if you follow it.

It's not E log X-optimal though.

You can run a back-test on that type of strategy using the underlying data from the linked post: https://drive.google.com/drive/folders/1hacdyPFJtLMybJrf4CwF...

Edit: typo

This doesn't sound like something you can know without back-testing that assumption (which is fairly easy).

"In other words, the stock market has never declined over any 20-year time period!"

That's not true. It is if you cheat by taking useless averages. It as declined, as you say too, a lot of times, and very badly, many many times.

There doesn't appear to be any period in question where you could invest in a broad-based index of funds and withdraw that investment 20 years later at a loss. That's what is shown in the FA and what the comment above means. Nobody's saying it has never declined.

What isn't true about the above statement? It's incredibly specific, yes, but it shows that at least historically buying and holding over time limits huge gains but also limits losses.

The linked page covers this in detail. The market goes down often, and sometimes goes down significantly for several years!

The specific point being made is that there has never been a 20-year period where the U.S. stock market declined -- when comparing the start versus end value of the S&P 500 index, on a dividend / inflation adjusted basis.

it's not an average. its saying you buy at the start of the 20 year period and withdraw after 20 years.

Make sure also to read Warren Buffett's take, written way back in 1999:

https://fortune.com/1999/11/22/warren-buffett-on-stock-marke... [a]

For me, the most shocking passage of his piece is this one:

> ...from the end of 1964 through 1981. Here’s what took place in that interval:

  DOW JONES INDUSTRIAL AVERAGE
  Dec. 31, 1964: 874.12
  Dec. 31, 1981: 875.00

Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move. And here’s a major and very opposite fact: During that same 17 years, the GDP of the U.S.–that is, the business being done in this country–almost quintupled, rising by 370%. Or, if we look at another measure, the sales of the FORTUNE 500 (a changing mix of companies, of course) more than sextupled. And yet the Dow went exactly nowhere.

[a] https://archive.ph/ZbKZK

Why is the DJIA relevant to any discussion about total stock market returns?

https://dqydj.com/sp-500-return-calculator/

This website shows a nominal 6.34% return with dividends reinvested from Dec 1964 to Dec 1981.

The point is that, despite massive economic growth (GDP quintupled) and very high rates of inflation (in the 1970's) during that 17-year period, at the end of those 17 years the market was valuing what at the time was the most prominent index of blue-chip companies at the same market capitalization they had at the beginning of the 17 years. In short, it seems that market valuations and economic performance can decouple for a very long time.

Note that the compound rate of inflation over that 17-year period was 6.5%. So, net of inflation, at the end of the 17 years, the market was valuing the DJIA's blue-chip companies at two-thirds less (!!!) than at the beginning of the 17 years. The S&P500, with all dividends reinvested, net of inflation, returned -0.2%/year over those 17 years.

despite massive economic growth (GDP quintupled)

In real dollars it less than doubled (https://fred.stlouisfed.org/series/gdpc1#0).

the market was valuing what at the time was the most prominent index of blue-chip companies at the same market capitalization they had at the beginning of the 17 years.

And during those 17 years those companies paid out roughly their entire original value in dividends.

It's true that the Dow lagged the overall economy during that period, but not nearly to the degree that the quote implies.

> The point is that, despite massive economic growth (GDP quintupled) and very high rates of inflation (in the 1970's) during that 17-year period, at the end of those 17 years the market was valuing the index of blue-chip companies at the same market capitalization they had at the beginning of the 17 years.

Makes you think that perhaps the stock market is not a great reflection of any on-the-ground reality, and that then makes you wonder what it is a reflection of, and... well, best not to think about it. Let's destroy pensions and put all of our savings into this casino run by the wealthy.

> 5%. So, net of inflation, at the end of the 17 years, the market was valuing the DJIA's blue-chip companies at two-thirds less (!!!) than at the beginning of the 17 years.

This means nothing because the DJIA means nothing, and is not a good proxy for anything.

>The S&P500, with all dividends reinvested, net of inflation, returned -0.2%/year over those 17 years.

This means something, which is that reward is proportionate to risk. Investing in the broad US market means your investment is backed by the federal US government, which means it is riskless on a sufficiently long timeline (assuming the US is still relatively powerful in the world stage).

You invest in SP500 (or Russell 3000 or whatever broad market fund) to keep up with inflation, over many years, not to earn more than inflation. If you want to do that, you have to take risks.

My takeaway from that is that either DJIA has the wrong companies in it, or it's representative of a sector that experienced negative growth during that time.

GDP growth is uncorrelated with stock market valuations.

https://m.youtube.com/watch?v=DEV49qY0TP8

Even less than that if you account for taxes.

I read this as Buffet criticizing the validity of using the DJIA as a proxy for real market performance.

I'm not an economist or big time investor but even I know to basically ignore the DJIA for all useful purposes.

That's not what he was doing. He was pointing out that stocks and the economy aren't the same thing. As in his example, if prices are too high at point X, then over the next 17 years prices can go down even if GDP is going up.

It's an expectations market.

Buffett advises investing in SP500, because it does serve as a proxy for the economy. Assuming you think the US is going to be around in 10, 20, 30, 40 years in any formidable form, then surely the performance of its largest 500 businesses is some sort of proxy for the performance of its economy.

Comparing the value of a stock market index at two arbitrary points is not a good analysis.

Here are some reasons why - does this include dividends? Are the dividends reinvested? Does this include ongoing contributions in the interim, perhaps at times when the index was down, now leading to an increase in value?

Generally it would include dividends in their returns, yeah. However, unless your adjusting the size of the position when the dividend was paid, these analysis would not reinvest the dividends.

Absolutely doesn't include ongoing contributions, I think that is the big thing. It is rare to just buy a stock or ETF and hold it for 20 years... usually people are buying more or selling the position during that period.

No, those figures are just the Dow Jones index at those dates, it doesn't include dividends. You can use this site to calculate total return with dividends reinvested:

https://dqydj.com/dow-jones-return-calculator/

Plugging in those dates gives 0.078% return without reinvesting dividends (basically the figures given in the parent comment), 4.632% with dividends reinvested, and -1.941% with dividends reinvested and taking CPI into account.

So, you still come out negative due to inflation, even after reinvesting the dividends.

I am almost 100% certain that the figures you quoted are solely the index values. Dividends are not part of the index values and never have been.

Zero change in index value over any period of time does not necessarily imply zero growth, especially when the time frame involved is over a decade.

Outside America this has been pretty common or even worse. FTSE100 (UK), CAC40 (France) are right now trading the same values as 1999. Nikkei is the same level as 1988. HK is same as 2007.

Of course, those are cherry-picked selective endpoints used to make the point look more extreme than it is. Look at any other 17-year interval, or better yet the average of all of them, and you will see that the expected value of growth is indeed solidly high.

Great call-out. Here's a non-paywall version to that article: https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf

Interesting to note that if you'd bought and held the S&P500 index for the 20-year period of 1998 to 2018, you would have invested through the dotcom bubble and the great recession -- but still ended with an average real total return of 3.3% per year over that timeframe (adjusted for dividends and inflation)!

Edit: typo

I never thought this was being too honest, as no one just buys the SPY once and forgets about it.

Most people invest at some interval (through their 401k, IRA, or whatever) and it is much better to run some kind of test that mimics this to some degree.

If you bought the SPY once a year, once a month, once a XXX from 1998 to 2018, what are your returns looking like?

Paul Merriman has a fun "lifetime investment calculator" that can get you those numbers, it assumes investing Jan 1 of every year (It's tuned to their recommended allocations but includes the S&P 500 as a baseline).

https://paulmerriman.com/lifetime-investment-calculator/

If you'd invested 100% in the S&P 500, say 10,000 a year on Jan 1 every year from 1998 to 2018, you'd have $522,135 from a $200,000 total principal, or roughly 13% annualized return (not including inflation)

That question is also relatively easy to answer: https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...

The "rate of return" isn't quite as simple to define when you're talking about multiple contributions over time. The most straightforward approach is to look at it as a weighted average, and the exact value depends on how you do the weighting. But in this case, it's in the ballpark of 7%/year nominal, which is probably 4-5%/year after inflation.

As you can see, you get a big boost (at least in this cherry-picked example) by continuing to invest through the downturn.

Agreed that an example of buying once per year (or quarter / month) over time and calculating the return of that scenario is more applicable to the experience of a regular investor.

This can be eye-balled on this chart: https://themeasureofaplan.com/wp-content/uploads/2023/01/Rol...

The bottom graph shows the annualized return for each 20-year period in market history. 20-year holding periods have this behaviour: - Max: 13.2% - Min: 0.5% - Average: 6.6% - Std. Dev.: 3%

So, if you dollar cost average over time and hold each of those investment cohorts for ~20 years, you should expect an average annual return of roughly 6% (+/- 3%).

These backtests used to be fun when I had access to a Bloomberg terminal. But, yes.. this discussion shows the importance of dollar cost averaging.

> Or, if we look at another measure, the sales of the FORTUNE 500 (a changing mix of companies, of course) more than sextupled

The sp500 is going to look a lot more like the fortune 500 than the DOW. The takeaway I see here is that the Dow may be riskier.

But, it would be interesting to see the sp500 during this time.

I think a useful analogy for engineers is that companies are machines, a black box that takes some amount of resource as inputs, and turn it into some outputs.

If we collapse the vector of those inputs (such as labor, materials, capital) and outputs (products, services) to a single unit such as "dollars" by which we measure those things, then any sustainable (i.e. profitable) business creates more output than input.

Personally, I like owning companies, because I like owning black boxes that take money in and produce more money out. :)

I do think the long-termist view, which this page promotes, raises several questions:

Do you believe that companies will, on average, continue being profitable in the long term?

Or do you believe that in the long term, profit margins drop to zero?

If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?)

Does a "steady state economy" exist? https://en.wikipedia.org/wiki/Steady-state_economy And if so, are steady-state corporate profits zero? Is there a "tendency of the rate of profit to fall" https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... or is this in some degree compartmentalized with the turnover of industry over time?

I do appreciate the graphs on this page, especially the rolling 5/10/20 year ones. When I get some free time, I may adapt that concept for my side project https://totalrealreturns.com/ which lets you graph the inflation-adjusted, dividend-reinvested returns of any publicly traded stock, ETF, or mutual fund.

I don’t think we need to worry about steady state economics as long as we are on Earth. Ultimately the whole economy is a proxy for measuring the flows of transformations of useless material and energy in to useful ones. The sun shines every day. That makes crops, which drive labor. Labor writes software, profits go up. The true input is the hydrogen cloud around the sun.

Still, we need energy to keep entropy at bay. If we reach an equilibrium between input and losses, we might get into a steady state.

You're raising very valid questions. It seems to me that we'd need to have continued breakthroughs in science, technology, medicine, etc. in order to drive sustainable increases in economic growth.

Forecasters have predicted the end of innovation at many points, but humans do seem to have a knack of finding something new and valuable.

> Or do you believe that in the long term, profit margins drop to zero?

> If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?)

> ...are steady-state corporate profits zero?

I learned the answers to these questions from economist George Reisman. I recommend his book Capitalism, specifically chapters 16 - 17, where he explains the answers and how he arrived at them. The book is available for free in PDF format here: https://capitalism.net/CAPITALISM_Internet.pdf

In short, the net amount of profit in the economy every year is the sum of the "net investment" plus "net consumption" during that year. "Net investment" and "net consumption" are both precisely defined in the text. Net investment is related to the changes in money supply and to the difference between the marginal productivity of capital versus the current rate of profit. And net consumption is related to the consumption behaviors of capital owners and the government. There is no general tendency towards a zero rate of aggregate net profit since there is no general tendency towards aggregate net investment + net consumption being zero.

Negative annualized return for the 10 year period from 2000 to 2009 is actually quite frightening.

"As always, Warren Buffet put it best: “the stock market is a device for transferring money from the impatient to the patient”."

One might paraphrase that as "those who can afford to wait".

That’s only for the money you put in the stock market in 2000 though. Usually you continually put new money into stocks, which somewhat flattens out the risk. Nevertheless, you arguably shouldn’t invest unless you’re prepared to hold for 10-15 years.

It helps too that he lived so long an has no use for the money he has invested

Why? He has children, does he not?

He famously has said he will donate most of his money rather than leave it to his children.

https://givingpledge.org/pledger?pledgerId=177

He's not leaving them zero or anything, and three of the foundations he's funding are run by his three children, so they benefit from his wealth. But they won't receive most of it.

he has billions but never spent more than a middle class lifestyle. Saving money matters a lot when we're talking compounding over decades.

The argument that the US stock market always goes up over relatively long periods of time seems somewhat flawed to me. If it were true that it was always best to invest in US stocks, everyone’s (longish term) money would flow to that asset class, thus undervaluing something else in return. So it just seems that it can’t be a dominant strategy or else everyone would be doing it. Wouldn’t that leave assets like bonds, real estate, foreign stocks, etc undervalued?

I see it the other way: Corporations can invest in anything, so if any asset class outperformed equities we would soon see corporations listed on the stock market which simply held those assets. (This happened with BTC, with limited success, of course.)

REITs are a classic example.

Wouldn’t it just be better for them to invest in more equities, like an investment bank?

So there are a couple of reasons that things wouldn't necessarily converge to equilibrium, and they're fairly well documented in all the asset classes you mention.

Foreign stocks: There's a well-documented effect called "home-country bias"[1]. Basically, investors tend to buy much fewer international stocks and are overly concentrated in their local domestic stocks. There's all kinds of reason for this, but they mostly seem to center around regulatory barriers (typically harder to open a fund to invest outside the country), political (major pension system are encouraged to invest at home for patriotic reasons), and reputational (losing money overseas tends to make the asset manager seem more reckless).

Real estate: Most governments heavily subsidize real estate from a combination of tax advantages and cheap credit. Look at how easy it is for the average Joe to buy a house with 400% leverage, no margin call, no capital gains on sale, and he gets all kinds of tax credits. Which means if you are getting those advantages than it's rational to invest in real estate, but if you look at raw returns real estate tends to underperform because investors with those advantages are willing to accept lower returns.

Bonds: The disparity between equity and bond returns is perhaps the most studied in all of finance, and is known as the "equity risk premium"[2]. There are numerous explanations, but two major ones standout. First, bond returns tend to be anti-correlated with the general economy. During recessions, when people are most likely to need liquidity, bonds tend to go up whereas stocks tend to go down. Second, many large classes of investors are basically forced to invest in bonds instead of stocks. For example insurance companies can only hold a tiny percent of their reserves in stocks and are required to invest in fixed income products. Similar story with banks, and to a lesser extent pension funds.

[1]https://www.gsam.com/content/dam/gsam/pdfs/common/en/public/...

[2]https://www.yardeni.com/pub/stockmktequityrisk.pdf

It isn't a zero sum game. The underlying businesses have generated returns on the capital deployed. It can continue to go up forever.

There is a limited amount of energy we can harness on this planet. Seems extremely difficult to believe it can continue to grow exponentially forever.

You're moving the goalposts. Capital is not energy.

You can use the efficient market hypothesis to talk yourself out of pretty much any good idea.

I think you’re conflating “consistently beats inflation” with “always best investment”.

That US stock market real total returns are positive doesn’t say anything about whether all long-term money will flow into it.

Everything else goes up over relatively long periods of time too.

Stocks also have much more risk compared to bonds , so more risk compensated by higher returns .

So at ~7% it takes 10 years to double your money. So that gives one about 4 doublings in ones working career. So, a bad ten year stretch like 98-08 which provided basically 0% over the decade makes a huge difference in ones ability to retire based solely on 401K/etc style returns and should be a strong argument in favor of defined benefit plans that basically pool the risk over a much longer horizon vs going it alone.

I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns. But if you go looking for such a thing, the returns are closer to 1/2 the s&p. Its really the kind of thing the government should backstop but... "socialism" even if the math works out. Which really pisses me off because its apparently ok to "socalize" the poor mgmt at $BIGCORP that gets a handout once a decade or so at the current rate after spending billions on stock by backs but not socialize individual retirement risk in a meaningful way.

You're missing the part where ~7% is already the average including the bear periods. During bull periods, the market increases by more than that average.

Between 2009 and 2021, the S&P 500 went up by 13.8% per year.

Between 2005 and 2022, the S&P 500 went up by 8.3% per year (which of course included some market crashes).

> I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns.

Target date index funds are the way to go there: https://investor.vanguard.com/investment-products/mutual-fun...

Target date doesn't solve any of these problems except to shift the investments from higher return/higher risk to lower return lower risk as you approach the target date. It helps with the problem that the market crashes right before you retire but in exchange you lose a percent or so over the lifetime of the fund. And while vangard is industry leading WRT to the expense ratio, right there on their page they note that the industry average is almost half a percent just in expenses. Never mind the lower returns.

And these days there really hasn't been anywhere to run since everything is so correlated. People close to retirement in those funds are going to be delaying retirement just like everyone else. -15% YOY with "safe" low risk/return investments really hurts. https://investor.vanguard.com/investment-products/mutual-fun...

The place I was at 15 years ago when I actually had money in a target date fund had a 1.5% expense ratio that was buried in a couple of different parts, fund expense ratio, and a underlying security expense ratio. And then on top of that the place I was at the "plan provider" or whatever they were called was scraping another .20% off of everything. There was a class action lawsuit, and the plan provider eventually lost. But, of the probably tens of thousands I lost vs just having my money in a IRA with vangard I think I got a check for something like $100.

> I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns

This sounds like you're describing a defined benefit pension plan, or an government old age pension plan like Social Security (in the US) / Canada Pension Plan (in, well, Canada).

As usual, higher risk begets higher reward. If you don't want to face the prospects of volatile returns, you'll likely need to accept a lower long-term average return in exchange for the predictability.

Traditional US pension plans are all but dead except for a small number of people basically grandfathered into systems. Social security doesn't have a way to "buy up" and invest more to get it to say match ones yearly income.

So really every individual investor is on their own until they get to the point where they can sell the risk and buy an annuity (although those tend to be terrible too largely I guess because they want to make $$$$ and other reasons).

So, in the US outside of Social security, which isn't a retirement plan, there isn't any option other than to hope you don't have to retire during a downturn, or that you have to go live in a box for a few years to avoid burning all your capital when its value temporary falls for a couple years. Because there isn't any way to recover except to go work at walmart as a door greeter.

There have been a number of articles about this over the past decade or two, which boil down to, in the US you can do everything "right" but whether you can actually retire comes down to a bunch of lucky decisions and market timing. So basically its random, with some probably of "success" of landing into a bucket that actually allows you to retire even at 65 which is well into the "everyone is dying off" part of the morality curve.

Work till you die is the official plan, but then people might start reconsidering their life choices when there isn't this "you will retire happy" carrot at the end.

"So at ~7% it takes 10 years to double your money."

No, it HAS taken 7% to double your money.

Most experts don't necessarily expect stocks to return 7% per year in the future. Instead they think stock returns are related to the price to earnings ratio, which has looked more and more unfavorable in recent years.

And even if you are basing your data merely on history, good luck designing an insurance that wouldn't have gone bankrupt during the great depression.

Note that there are 20 year periods where the net gain is close to 0. People starting their economically productive life during one of those intervals will not see any economic gains from investing in the stock market, and to the extent that the market echoes the economy their economic situation will likewise be stagnant. And worse, there will be all the people from the lucky intervals extorting these unluckly people to pick themselves up by their bootstraps.

People born in the lucky periods almost always describe their results as due to hard work, never as due to luck. And unlucky timing is almost always attributed to personal failures, not the economic situation.

Bogus. You’re assuming they invested all their dollars at the year 0 (peak) price an and sold everything at the 20 year trough. Of course that’s impossible, they invested over their entire careers which included intervals of much lower prices. So much should be obvious by just looking at the sp500 graph of performance over time. There’s no period where dollar cost averaging over twenty years gave a result like you’re saying.

One thing that's not intuitive is the drag of management fees in the long run.

If I have 5% average stock market returns over 60 years and pay 0.5% fees, then $100k invested grows by $13M. If I pay 1.5% fees, it nearly halves. This is why I'm a fan of Vanguard and other low-fee index funds.

(1.045 ^ 60) - 1 --> 13.0

(1.035 ^ 60) - 1 --> 6.8

People forget fees compound. 1% extra fees will make you a lot more than 1% poorer in the long run.

When 99% of investors agree on an investment idea, usually that means a bubble that is going to burst.

Credit Suisse does this every year in the Credit Suisse Global Investment Returns Yearbook. https://www.credit-suisse.com/about-us/en/reports-research/c...

https://www.credit-suisse.com/media/assets/corporate/docs/ab...

Can we see the same analysis for the Japanese stock market? The JP225 index is still lower than it was 1989. Yes, the US is in a different situation. But any predictions towards the future of the US stock market is gambling IMHO. There are simply way too many variables and unknowns to determine future stock prices.

[0] https://tradingeconomics.com/japan/stock-market

I remember people advising to buy things with loans and invest your cash because your returns are more than your interest rate. If you don't need that money for 10+ years, that might make sense, but when things go south, your money (and probably your income) will be gone, but you'll still have payments. (That's assuming the money is actually invested, and not frivolously spent.) Advice like that is why Wells Fargo, Bank of America, and JPMorgan are rubbing their hands in their shiny towers. F*** them.

Start investing and pumping money into the market, guys! This time it's safe, market will never go down again and noone will lose money! Promise! /s

It's funny how they talk of money and market value being erased as if the money is definitely subtracted from balance without being added somewhere else, literally deleted from existance.

When the market crashes for you and others, there's always someone in the high echelons of the game who ends up getting richer.

Stock market up a lot today, almost 3%. It's days like today that make it worthwhile. You cannot have upside without also having some down days or even, occasionally, down years.

It's interesting how the DJIA has done so much better then the S&P 500. I think this shows the value of periodically removing weak components from the index and choosing only the largest of already large companies instead of 500 large companies. the DJIA also held up well in the 2000-2002 bear market.

Yep. "Avoiding the market’s downs may mean missing out on the ups as well. 78% of the stock market’s best days occur during a bear market or during the first two months of a bull market. If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half. And missing the best 30 days would have reduced your returns by an astonishing 83%."

https://www.hartfordfunds.com/practice-management/client-con....

Buffet’s simple advice for anyone wanting to invest but not sure how to start - Have at least some exposure the S&P500 for the long run. Pretty sound advice.

This justifies historical investment strategies like the very simple buy and hold forever (only blue chips and salsa please) or something marginally more sophisticated like dogs of the dow. The real question is whether growth will continue, or at least during our life times, be kept afloat by unfair practices by the wealthy.

This is bullshit: past returns aren't indicative of future returns. You can't predict the next catastrophe. "Zooming out" is the perfect way to loose money, even better than CAPM or similar stupid things.

Edit: Since I'm being downvoted, go read: "The misbehaviour of markets" by Mandelbrot or "The black swan" by Taleb, or just reflect on what "zooming " really is: averaging to keep out outliers.

Edit 2: to put it in less salty terms: yes, now it's down 23% from the previous year, so probably it will go up and you will make a profit, as long as US economy doesn't collapse. But you don't know the probability of such an event, since the distribution of returns in markets is unknown (we're not yet at the limit at which the central limit theorem holds). Not knowing that probability, you may die before you see your return. Or, as said, US economy may collapse, your bank or broker will, etc. Meaningless risks? Perhaps in a world of gaussian distributions, not our.

I think you have to see it more from "best alternative" mindset.

This shows that long term (20 years and plus) assets are best held in low cost stock index funds. Over cash (inflation), bonds, savings accounts, or other assets. It's the least bad option. And you are not suggesting something else. Hence I guess the downvotes.

Of course, markets can be irrational forever or tomorrow we could have a nuclear world war or aliens annex us or a meteor can hit us. This is life 101 though. This is not a deep insight.

Not suggesting something else isn't an argument. Long term from now you don't know anything, you know long term up to now. The risk of a market crash isn't the same as of a meteor hitting earth, since tails of the probability distribution (as can be estimated, so not cast in stone) are fat.

I don’t know the probability of me being hit by a deathly-traffic-accident, therefore I will never leave the house.

It's not the same type of risk. I'm not against risk taking, but betting everything in the stock market is plainly stupid. I'm ok with many people believing it's not however, I can keep benefiting from crashes ;)

If the US economy collapses (to black swan catastrophe levels), you are going to have a much different set of problems and markets will stop running all together, the world will collapse.

We do know that the probability of a collapse is so small that it is not worth worrying about for investment strategy. Better to worry about the things that might lead to such collapses and strategies to mitigate those

My main point isn't the only risk is the economy collapsing, this is nitpicking

All that long-term data and presentation is lovely and all, but I disagree with the conclusion of "buying and holding has been a simple and straightforward way to build wealth".

Saying investing $1,000 in 1871 would be $22M now doesn't help me. Saying $1,000 in 1969 is now $23K doesn't help me - I wasn't alive then. It's not practical.

I didn't have $1,000 of savings until my late 20s. After paying for bachelors and masters, I had to borrow $500 from friend to eat and live until next pay check. Then car, house, furniture.

And if that $1,000 I invested in late 20s turns into $2,260 in 20 years - whoop-dee-doo, who cares.

Conclusion should be "buying and holding has been a simple and straightforward way to store wealth". But not going to build wealth unless I'm active - building resume, building business. In addition, I might as well take that $1,000 and swing for the fences and turn it into $10,000 or more looking for the next AAPL, GOOG etc. like venture capital.

I obviously can see your logic but I still think it's your best bet. I also think it's important to point out there's an order of importance. If you have low or no income you're first priority needs to be getting a higher paying job and or up skilling to enable you to get a higher paying job. From there assuming you got a decent job most of us will have a 401k option. You get a tax deduction, tax free growth and most importantly most of us get matching employer contributions of some form. If you put in enough to get the full match over the course of you're career you're going to end up ahead. If you have an HSA sames goes there. If you have a low enough income to qualify for the deduction on an IRA same goes there. Oh yea did I mention 529 for your kids future? Combining investing w/ special accounts that can grow tax free and offer tax deductions are going to maximize you're chances of overall success but again I agree all this is kind of riding on you being in a decent paying field and if you're not already that should be your first priority.

Yes, definitely need to optimize for the employer contributions and tax savings, but that wealth is still from the job. I guess disagree with the "look how much money you'll have from compounded returns!"... the timelines are too long to be practical in our life spans.

What you are overlooking is the risk aspect. If you are guaranteed a return of say 6 to 7%, you are looking at doubling the money in about 10 to 12 years. That kind of assurance means you can invest much more with specific goals in mind.

This is the reason people take a more balanced approach where they split their investments in say a 70-30 or 90-10 ratio and put a smaller percentage in short term high risk - high return investment.

Generally, the idea is to invest each year, and hold those investments over a long period of time.

You can use this calculator to run different scenarios.

https://themeasureofaplan.com/net-worth-scenario-tool/

Example inputs: a 25 year old with a starting net worth of $10k and who invests $7k per year over 40 years, at a 5% average annual return.

Output: net worth of $915k at age 65. This provides retirement spending of $37k per year (using a 4% safe withdrawal rate assumption).

If I start at 30 years old (as per my initial comment) with $10K and $7K per year, it shows $687K. At 4% withdrawal rate that is $27K per year in retirement. Of that $687K, I would have kicked in $255K of it as principal. Sure it's something, but that's over 35 year time frame. Wealth is going to come from other sources.

Doesn't really fit the "do what Warren Buffett did and be wealthy" narrative that people imply with buy-and-hold. Buffett made concentrated bets. He effectively used leveraged (using insurance premiums) to make bets. He prefers to be a business owner instead of shareholder (i know it's a subtle distinction). The Warren Buffett quotes people use to justify these strategies is misleading.

How can we have infinite, exponential economic growth on a finite planet?

Depends on the metric and what you mean by growth per se.

If no physical object is involved but rather just changes or reconfiguration of the - let's say - human brain, in the end, all possible states are limited by the (overall) entropy of our universe. If multiverses turned out to be accessible (i.e. empirical objects) then according to our current understanding there seems to be no limit.

The closest limit isn't "economical" but much more "biological"/"societal". If we destroy the livelihood of our species before understanding/appreciating it - let alone transcending it fully (which some folks claim to be right around the corner) - we are just another failed (alien) civilisation who couldn't get past the threshold.

The mathematical "exponential" part isn't the isolated problem but in combination with our limited understanding; flawed evaluation and the gross deficiencies in our current social structures (institutions, governments, bureaucracies, corporations, distribution of resources, conflicts of interests, "war" ...). The current economical incentives are just a reflection of that.

I guess eventually the earth will be swallowed up by the sun, but for practical purposes economic growth happens when we rearrange the atoms and bits at our disposal into things that people consider more useful. All of the materials to create a car existed here thousands of years ago, but we didn't value it as much until somebody figured out how to assemble it into a useful form.

What's more, an old junk car might be valued at $3,000, but we can take most of the same materials and transform it into a new car with $15K (or other goods we consider worth more than the $3K car). The same finite resources + energy & labor (when used productively) = economic growth!

Growth isn’t solely tied to use of finite resources. Services also count. Two people can exchange a service, say a massage, which extracts zero finite resources, and at the same time, creates economic output.

edited typo

I've wondered about that, but it doesn't seem to add up. Maybe you can help me find the flaw in my reasoning (below):

There's (at minimum) Time being exchanged. If A gives B a massage, A and B are investing that Time in this transaction (also, A is investing a space, a massage table, electricity for the physical space, etc.). All of these things are finite, and devoted to this service. If the service were not provided, these finite resources would not need to be locked up / extracted / used.

To say that the providing of this service happened in a vacuum of "extracts zero finite resources" seems a bit disingenuous.

A message isn't zero finite resources. People think software is ephemeral. It's not. Software has a physical manifestation (should be obvious, it runs on hardware and uses energy).

By 2025 the internet alone will consume 20% of all energy.

energy and raw material per unit of GDP has been going down for a few decades (basically digital economy is more resource efficient). Sorry I don't have a citation handy.

Your other assumption is we are going to stay on one planet, which I don't think is true. We will consume asteroids + resources on other planets when it is economically viable to do so.

Also, the economy doesn't permanently "use up" earth's resources (other than a few exceptions that are fixed like land or go through a 1 way process like uranium). Water, wood, food, etc are all renewable resources. Even Petroleum might not be as finite as we currently think it is (https://www.scirp.org/journal/paperinformation.aspx?paperid=...)

6.9% as geometric doesn’t look so attractive. I wonder if a basket of bonds could perform better with less drawdown.

If you replicate the same analysis using European or emerging data the results are even worse.

Maybe it would have muddied the site's data but it gets a bit better when you factor in dividends and dividend reinvestment

Also interesting question from some perspective is putting a unit of currency in a market now and then in 10 years it being worth nearly double logical? Or in 40 years worth nearly 15 times?

Would be wise to look at stock market side by side with bond market.

Past results don't guarantee future performance ;)

Well - last time the pattern looked like this (the years around ~1917) it eventually led to WWII. So will we see a WWIII in the next 5-20 years?

This is actually horrifying if you think about it for a minute.

Given GDP is growing at a slower rate than this, this means that the rich will genuinely just get richer and get a larger slice of the pie while the poor get squeezed.

Land/house prices will increase to the maximum the market can bear and as that market will be full of money from those inheriting from their parent's patient investment... we'll end up in a society where your quality of life depends on the wealth of your ancestors.

> GDP is growing at a slower rate than this

Over what interval are you observing this?

enerational wealth diffuses in 3 generations iirc

That's the basic premise behind Piketty's book "Capitalism in the 21st Century". From wikipedia:

"The book's central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority."

As long as I have been browsing the English-language Internet the overall mood among Americans has been that the S&P500 and US dollar hegemony will collapse in a month.

Why is that? I'm European but the US doesn't seem too different from most of Europe in terms of stability and the risk of unrest.

On the internet, you never know who are those "Americans". Keywords such as "US dollar hegemony", "petrodollars" and "Yellowstone volcano explosion" are strong indicators of a certain country's troll operation.

A Fourier transform on the data is left to the reader. It reveals soooo much more.

Any quick insights to share?

Don't keep us hanging!

It's my understanding that the return on investment has been slowly and constantly going down since at least the 70s, such that it is getting harder and harder to find good investments. That is made more problematic by low interest rates (can't just "bring it to the bank") and high inflation (can't "put it into a sock"). This is the cause of a lot of ailments. Money rushing into real estate, investors requiring a certain ROI, thus neccessarily raising housing prices. Something similar happens in the health sector.

How do I square that with this plot that seems to imply constant (although not stable) high returns for over a century? Are the stocks picked not representative (probably not) or not weighted properly? What does "adjusted for reinvested dividends" mean? (I could imagine in times of high inflation and low ROI, companies would want to get rid of cash and pay dividends, rather than investing it themselves for example.)

This data is based on the returns of the S&P 500 index, which is made up of the 500 largest publicly traded companies in the US: https://en.wikipedia.org/wiki/S%26P_500

Adjusting for reinvested dividends refers to an assumption that the cash dividends paid out by a company are re-invested to buy more shares of the stock. The concept being that a company can pay out a cash dividend or use that money to invest / grow their business. Therefore, to calculate a "total return" we need to factor in the price increases of a stock + the dividends that were paid by the company.

> the return on investment has been slowly and constantly going down since at least the 70s

Curious if you have a source for that?

> What does "adjusted for reinvested dividends" mean?

Dividends are payed out in cash and this means the analysis assumes they're used to buy more shares.

There's an argument that the American economy in the 20th century is itself a selection bias. It's the most successful economic period in history. Other countries in the same period or the world economy in other periods do not have such spectacular returns.

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