Stock market charts you never saw (2021)
papers.ssrn.com
papers.ssrn.com
It would be cool to merge in some longer-term historical data as the article author has done, instead of just using actually-tradable assets like I've done.
Per the article, the author considers these charts "misleading":
> Charts such as Figure 9, with their accompanying commentary, and combined with the distinctive behavior of the product function, may lead investors to mis-anchor their expectations about the future performance of bond and stock investments. Faced with a yawning visual gap, and apprised of the numerical dominance of stock returns (in Siegel 2014, estimated at 6.6% real versus 3.6% for bonds), an investor readily infers that bonds are never going to out-perform stocks over any lengthy period.
I'm not sure I agree with the conclusion. A log scale hides a lot of volatility, but it's still fairly obvious that the stocks line has a lot more volatility, prolonged periods of substantial drowdowns (painful!)...
As another commenter points out, this article's use of price-only data (even if adjusted for inflation) is intellectually dishonest, ignoring returns from dividends. And yes, your typical price-only, non-inflation-adjusted charts from Yahoo Finance / Google Finance / Apple Stocks should probably be considered intellectually dishonest, or at least confusing, in my opinion...
Their charts are price-only. Same with Google Finance and Apple Stocks.
EDIT: OK, I see there's a note that close is split-adjusted but not dividend-adjusted.
The price increase at earnings announcements is (to a first order approximation) indicative of the extent to which the company's earnings exceeded the market's expectations. It's as likely to be positive as negative. Otherwise you could buy the company's stock the day before the earnings announcement and get yourself some free money.
Using SPY I can easily see the non adjusted returns from the bottom of the GFC to the top in 2021/2022 were a little over 600% but then accounting for dividends see it's actually a bit over 800%.
https://totalrealreturns.com/s/SPY?start=2009-03-09&end=2022...
- There is no more emphasis on price-only-inflation-adjusted returns. Good riddance: getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point.
- He no longer argues stocks don't work for the long run, just that bonds were as good in the past. This is a lower bar to meet as bonds in the past, especially corporate bonds as he's included, are actually quite risky!
- Finally there is some argument to be made that bonds are better investments when monitoring technology is poor -- since insiders can steal equityholders' wealth. But the 20th century invented good accounting, auditing, etc to reduce that and drive up equity returns.
How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.
I don’t know many people that spend 100 years in retirement.
If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1]
If you want to live solely from dividends, you'll need more than double the capital.
If you want to die with zero [2], it's impossible.
I'd much rather invest in a dividend-accumulating index fund and sell as I please.
[1] - https://www.multpl.com/s-p-500-dividend-yield
[2] - https://www.goodreads.com/book/show/52950915-die-with-zero
If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.
Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.
I've noticed them mostly in the form of charitable trusts (which can offer the benefit of basically shielding large asset gains from taxation). But it doesn't seem to be a widely-used investment strategy in general. Maybe it's more common if someone doesn't have an interest in passing down any money.
I haven’t read anything about it yet but a lot of them must be in pretty awkward straits because most aren’t fully indexed to inflation…
Live off dividends, then sell to pay for the healthcare right before you die
In most other developed countries a) healthcare is funded by the government (to a first approximation). b) end-of-life healthcare expenditure is considerably lower outside the US.
[1] https://www.investopedia.com/articles/markets/071616/history...
[2] https://www.spglobal.com/spdji/en/research/article/a-fundame...
You don't let interests from bonds reinvest as well then.
There is also the issue of survivorship bias. The SP500 and Dow Jones indices regularly discard the losers and add new companies, so we don't know the true results of holding companies for a long period of time.
That's certainly true in marketing material of fund managers. But it's not true in honest academic papers, like this one. There's lots of data out that about total returns of the stock market, that takes into account dividends and survivorship bias.
Mutual funds are required to periodically report their holdings:
https://www.sec.gov/edgar/sec-api-documentation
Rate limit yourself to under 10 requests per second, and put contact info into your user-agent if you'd like them to contact you about problems.
> The APIs are updated in real-time as filings are disseminated. The submissions API is updated with a typical processing delay of less than a second; the xbrl APIs are updated with a typical processing delay of under a minute. However these processing delays may be longer during peak filing times.
(ETF current holdings, I believe, are legally required to be published)
And no investment professional worth their salt would advise to buy individual companies to hold for the long term (almost all will go out of business or underperform eventually) so I'm not sure what purpose the survivorship bias comment serves.
Also investing in Index is Momentum strategy disguised as buy and hold since Index will rebalance periodically to add growing companies and remove the lagging ones.
[0] https://www.businessinsider.com/momentum-trading-has-beaten-...
[1]: I don't have citations at hand, but the papers are reproduced (among many other interesting ones!) in Theory and Practise of the Kelly Capital Growth Investment Criterion.
Imo the mistake most make is they mentally compare it to themselves reading a bit online and then picking stocks based on what they feel will perform well. Of course this can only go wrong. If you're an expert in an area like the first quant traders or someone who understands startups and does angel investing, you can absolutely beat the market and people do it all the time. That's how some people get rich, you can not become truly rich by working a 9-5 office job and buying a few stocks. Unless theoretically you trade the riskiest penny stocks with leverage and magically come out on top every time like some of those WSB guys. I've yet to hear of cases where this works long term. The smartest ones know when they get lucky and stop playing, because that's pure gambling.
But the problem of some people not being rich is not simply because they can't invest well. First, obviously, not everyone can be rich. Second, most people suffer from the problem that they don't save enough, rather than that they don't invest well enough.
Yes, some people do beat the market. Obviously a lot of people are playing the lotto every day, and some win. Do they do it reliably? No. Disabuse yourself of the notion that beating the market is ever anything other than luck.
> Investors have seen countless charts of US stock market performance which start in 1926 and end near the present. But US trading long predates 1926, and the foreshortened perspective that results from a focus on post-1926 data can be misleading.
> The goal is to challenge shibboleths about the expected outcomes of buy-and-hold stock market investing, and to raise questions about the expected performance of stocks versus bonds over long periods.
> Put another way, since 1928 dividends plus inflation accounted for 99.7% of the nominal wealth produced, as of 2008, by investing in stocks.
> Total return measured on the century scale presumes an investor who never needs to spend the dividends or interest received. No real investor, individual or institution, has that luxury. And there is one class of individual investor, now of growing importance within the financial planning literature as the Baby Boom generation ages, for whom the total return metric is particularly malaprop: retirees. Once portfolio accumulation ceases with retirement, portfolio income must be spent to live. Under those circumstances real price return, over short periods lasting two or three decades, becomes an important metric. By that measure, an investment in stocks has been dicey indeed.
---
Just to whet your appetite some more:
> Figure 4 [1] illuminates how much of the long-term return on stocks since 1926 has been due to sustained high inflation on the one hand, and to the favorable enhancement from re-investing dividends on the other. Under the one depiction, the portfolio returned about 9% compounded, from near the high in the Twenties to near the low in the Oughts; under the other, only about 1.5%.
> Few contemporary investors expect a multi-decade return on their stock portfolios of 1 2% per year. They have no reason to expect such poor results, because most investors have never seen a post-1926 chart of inflation-adjusted, price-only returns, and have rarely seen any charts extending back past 1896.
I feel like I must be missing something. Why are dividends treated differently from price increases?
As I'm saving for retirement, "stock goes up" and "stock pays dividends" are basically the same thing in my mind. I assume a dividend is effectively a price increase that gets automatically liquidated. I could choose not to re-invest them, but I could also choose to sell some of my non-dividend stock.
It is true that, as a future retiree, I need to be looking at grown on a decade-scale, not century scale. That part makes sense. I'm just confused by this separation of dividends.
the stock price is how much people are willing to pay for purchase said stock.(consider market share when looking at price, because 2 stocks at $5.2 is the same thing as 1 stock at $10.5)
so yes, from your gains perspective it is the same thing but the source of where the increase in your portfolio is entirely different
Just to make sure I am following correctly, is this referring to the process which:
corporations have had their costs go up roughly 2% per year since 1928, so they have raised their prices roughly 2% per year, making it so that cost increases (labor/good/services/whatever) are "passthroughs" (assuming margins stay the same), passing along increases to customers (who have roughly had their pay increase 2% per year)
and because of this, corporations have stayed profitable (more profitable in dollars, "the same" profitable in percentage given margins/inflation?), and share prices have grown?
you're thinking about it the right way, and they aren't treated differently the way you're thinking. They way they are treated differently is,
if you just look at historical stock prices you will miss the dividends being siphoned off, so you have to track the dividends and put those amounts back into your charts, and it's mentioned over and over so you don't look at the data and wonder if they did the naive thing or the complex thing.
and dividends are taxed in that calendar year as income at the corporate level, and again at the personal level, and not with lower capital gains tax rates, so the amount left over that is available to the investor to spend or reinvest is smaller than the nominal amount, and taxes change over time, and different income brackets pay different taxes (which is ignored, i think, they just use worst case marginal tax rates) Because dividends are income-taxed, it makes sense to earmark that money to spend on yourself if you're going to be spending any of the money on yourself.
and large "institutions" frequently don't pay income tax (I'm not an expert, but churches, foundations, and perhaps pension funds and corporations which have large losses/expenses/depreciation to write off) but they do play a large role in the investment markets, driving market prices etc.
You know what it all reminds me of? climate science. You can measure a ton of metrics and track them over time and try to predict the future, but the data is only a very rough estimate of what's going on, and the underlying dynamics change a lot over time.
Why should I care about price-only returns?
I don't understand this. It's like saying: I don't have the luxury to sell off some of my growth stock. It makes no sense, you sell when you need money, and you re-invest the dividends unless you need money, same thing.
This would imply that the average investor will generate wealth by investing in equities that pay dividends...in other words profitable companies...
OK, so strip out inflation to get real rather than nominal returns, and it becomes "stock investment produces almost all its returns in dividends over a long period". Which is .. not that surprising? Because dividends are ultimately why people buy stocks in the first place? The present value of a stock is after all the "net present value" of the expected flow of dividends.
I would disagree, I feel like the mojority of stonk owners think dividends are passe companies, and a real company would reinvest its earnings or buy back stock. I disagree with these people. I think a company that has no intention of paying a dividend is merely an over produced digital collectible.
> I think a company that has no intention of paying a dividend is merely an over produced digital collectible.
So, Amazon is a NFT?
An NFT is a good way to put it.
Their article already shows a slight widening between bonds/equities post 1950. My theorey is that for the next 100 years, we'll see a much larger widening between the returns of bonds and equities as more and more governments default on their currency. Thoughts?
EDIT: the article I referenced was the one the other poster mentioned: https://economics.harvard.edu/files/economics/files/ms28533....
Also, equity returns should in the long term be equal to Producivity per capita + population growth + inflation + dividends. And If you look at each of those for the last 100 years and the next 100 years for the US, you'll see a pattern. Pop growth down to 0.4 from 1.3. Per capita growth down several percent in the last 20 years vs the 100 years before that and with current PEs where they are, dividends are down to 1.3% from a historical 4.5%. Translation: Future equity returns will be much much closer to inflation than they have been in the past.
Also GDP is a terrible proxy for economic prosperity. A broken window adds to GDP, but subtracts from prosperity. If we had a better proxy for prosperity, it would be easier to see if government debt was actually net negative or net positive effect. As is, all arguments one way or the other are speculation and ideology.
A forest cleared creates wealth & prosperity, but what was the value of the forest that was lost? What value do we put on natural amenity, biodiversity, a pristine environment?
An employee works very long hours, numbers go up. Great. In specific situations though we can ask: was any wealth actually created, or was the wellbeing of the employee and their children simply exchanged for dollars?
etc. It's value judgements all the way down.
You can have a high salary in country A, but live in a small studio, eat shit-food and have to take a crappy metro for work.
Or you can take a much lower salary, live in a nice 2-Br apartment, eat at nice restaurants and take a new nice metro for work, and still be able to afford a car.
You’d need $120k/year to afford 1 in New York, and $30k/year to afford 2 in Kuala Lumpur.
There are pther manofestations of thos, and it is not always done by governments.
One of the few true reflections of economic health is commodities - those cannot be fakes.
See, for example https://www.weforum.org/agenda/2018/01/gdp-frog-matchbox-dav...
All debt comes due eventually, you can choose to go bankrupt or you can choose to pay it.
But if neither option happens in your lifetime, you don't need to care, if you are just trying to optimize for yourself.
The interest on federal debt recently makes up (very roughly) 1/3 of our total deficit.
This is why when the US doesn't raise the "debt ceiling" we risk defaulting on our debts.
At some point, we can't keep borrowing to satisfy our debt(s). The question then becomes, what happens? This current inflation is actually a not bad thing for US debt, as we are inflating away some of it. It totally sucks for those of us that want to buy food and shelter though.
Either we endure some hardship(s) and have a miserable decade or three or we crash and burn.
I'm betting we endure the hardships. The other option(s) are much worse.
Why not? It's just a question of the rate of growth of the debt, the interest rates the USG pays on its debt, the rate of inflation and the rate of growth of the GDP/tax base.
There is absolutely a level of deficit spending that can be supported indefinitely. The question is whether we are above or below that level, not whether that level exists.
So while what you say is theoretically possible, it's practically impossible, as there is almost no incentives for any people currently in government to try and sustain that, and incentives absolutely matter.
If you know of a practical example of this theoretical indefinite borrowing, I'd be very, very surprised.
There's another option. One that's far more politically favorable: You simply take out more and more debt, until finally the whole world sells US treasuries. at that point the fed prints unlimited amount of money to buy up all that debt. And when the US pays interest on that debt, it just pays it to the federal reserve which then sends it back to the US. This is the end game, we're looking at. And the result implies inflation and LOTS of it. that's what I mean when I say, they will default on the currency.
(Hint: US 10 year T-bond rate is 3.4%. That's not very high. Also, we have the world's largest military and can do whatever we want.)
If you want an exciting doomer story to believe in, try deflation. It's worse than inflation, so you'll look more cynical.
But, in this day and age where the fed has sooo much power, it doesn't matter. see below.
>> If you want an exciting doomer story to believe in, try deflation.
The Govt and the fed are both on the same page, in this regard: they will almost NEVER allow a deflationary spiral to happen. If you watch a lot of financial news from people who read the fed and intrepret what they're signalling, you'll find there is widespread agreement on this (especially as of the 2018 powell put).
In the history of countless countries and currencies from all over the world, all the outgoing empires and countries end up defaulting on their currencies in the end game. See Ray Dalio's latest book, he's got a great explanation on this.
You bring up an excellent point about the T-bond rate. If everyone already knows the endgame, then why hasn't the bond market priced it in yet? Shouldn't everyone be dumping T-bonds en mass? Are they slowly? these are the questions I'm trying to get answered. Part of it is because the fed was already buying up a bunch of t-bonds, hence a sort of partial yield curve control. other participants, must not be ready to give up on bonds yet, especially the institutional investors who are looking at more short term gains rather than long term. You can still make money on bonds in the short run betting on interest rate fluctuations.
Uhh yeah, about those remittances[1]...
The question, which was what my comment was about, is how we eventually get to the end. We either buck up and pay it, or we crash and burn.
I'm betting we buck up and pay it, and just have a very bad decade or three, while taxes go up and spending goes down.
I think this is more that we're entering a post material scarcity economy kind of like we changed from almost everyone being farmers. We're leaving behind the economy where almost everyone manufactures stuff to where they do something else.
No we’re not. Materials for housing, etc are just as expensive as ever. Food still has to be heavily subsidized by the government directly and indirectly (“water rights”).
Post-scarcity is a fantasy world used to justify heavily socialist policies that allow people to not work without having to wonder who does have to work.
https://www.lesprom.com/en/news/U_S_lumber_prices_in_2020_an...
Just look at the cost of shelter. Housing costs sooo much more than it did 50 years ago or even 200 years ago. During the time of Henry david thoreau, an average house cost 800 days of unskilled labor wages (meaning 800$, the average unskilled worker made 1$ per day). Today, it's over 5000 days of unskilled labor wages when you take into account property taxes. the difference in shelter cost is so enormous, that back then 1830s, mortgages were often just 10 years. And thoreau thought even that was too much.
Housing is more expensive on average, but only because houses have gotten much larger (the average new house was ~1000 sqft in 1920 and ~2600 sqft today), and are more likely to be in urban areas where land is scarce (20% urban in 1860 to 80% urban today). Of course modern housing is built to a much higher standard as well -- in Thoreau's time, the average home would not have had indoor plumbing or electricity.
You can absolutely find cheap housing if you're willing to live somewhere small in the middle of nowhere. But most people don't want to do that these days.
I camt get to work from the middle of nowhere. Social services willvtake away my kids if O live in a wooden hut without heating.
Let's compare items with equivalents of their time.
Otherwise I can make unfavourable comparison with cavemen -their realestate would cost millions today
(And industrialization, like prefab houses, doesn't work because the policies are set by local governments so you can't produce a single viable product for all of them.)
This ''socialism'' you're so seemingly afraid of was a foundation of the capitalistic growth we had in the last century.
I'm not sure where you got this idea, but unless you have a personal definition of capitalism that doesn't equate to private ownership of the means of production, this is an obviously false claim.
Capitalist economies are notable for their ever increasing investment in the future and corresponding decrease in the time preference of money as an economy becomes more developed.
Oh really? Then why are all emergency services are run by governments?
Why doesnt private market invest in infrastructure and why is US infrasteucture in such poor condition?
Is that why capitalist society fails to invest into clean energy and hault climate change? Is that why soil erosion was running rampant untill government regulation was introduced, we had lead in petrol and rivers used to catch fire?
UK, as the most capitalist societt in Europe, looses the most money on heating the most poorly insulated houses. It knocked down its last gas storage facility because it was unprofitable.
Capitalis plans for the next quartery report, it does not plan fpr once in a decade famine. systemic relisience against rainy day is not one of its strength.
This seems a rather dangerous view, as the post scarcity era of maybe the late 20th century globalism, or the larger industrial revolution and coincident population explosion, could be nearing it's end. Peak cheap oil may be just around the corner. The growth built atop improving agriculture yields, cheap oil, and cheap labor has resulted in population growth that cannot be maintained without corresponding sources of the same cheap input sources.
And part of this is exacerbated by what you describe: a huge portion of population not subsisting on their own work output but depending (or being subsidized by) the work and resources of others.
How to even begin defining who is subsisted by who? Is the FAANG engineer creating sustenance or is he subsidized?
I see something else. Millions of people working their asses of, many in multiple jobs, in the richest country in the world.
Most of the productivity increase of the last decades has gone to the richest part of the population. Who's subsisting on who?
Do you mean the super rich that want more of the tax revenue for themselves, or boomers, or who are "people"?
1) favorable loan terms for financial entities (loans in both directions, but ultimately favoring the bottom line of private capital);
2) favorable taxation terms for the wealthiest earners and owners (e.g., low capital gains and inheritance taxes, when compared to income taxes);
and 3) federal and state benefits that often face large and unnecessary administrative costs (in order to reduce fraud (which is only possible because they're means-tested or otherwise restricted));
in that order. And the first two rob the treasury of far, far more than the last. By orders of magnitude, particularly in the past few years.
Interesting look at truly long term results from the US stock market and bond market. Back ot the 1850s. Also looks at when stocks and bonds lagged "the average" or performed poorly for decades.
I guess my question is: where else are you going to go to invest your savings? Maybe real estate (but it can be a lot of work), maybe cash (but you can lose a lot to inflation)?
Government pension or annuities can be an option, but then you're essentially giving up some upside and pushing the same decisions onto another person (though they have more options, since they have much more money).
Just another argument for a diversified portfolio, rebalanced regularly.
this puts a huge ? on all asset classes.
Some other points about stocks, their 10% returns was done by many studies that looked at performance between 1952 and 1999 (just after the great depression ended and just before the dotcom bust).
almost all asset classes over that 20 year period (1999-2019) out performed stocks, including gold and oil.
Thr EMH is a hard mistress too. There is no amount of data that can help you solve unsolvable equations.
So alot fall into this trap, synthetic data. Some of the best statisticians on the planet have. It is so tempting to believe that there is money to be made by being cleaver trader I markets.
General, there is not. Buy and hold is not a shibolith it is a strategy. It is the only strategy that can be replicated.
Synthesizing data to disprove buy and hold is wishful thinking. Data snooping.
presumably the SEC would have their software sift through transactions to correlate insider trading (which is one form of illegal way to make money).
This is not a court of law.
This is finance.
If it is too good to be true it is "guilty". What was the other option? Irrelevant.
Jim Simons makes 80% a year from his fund but he still has to find boring ways to invest that extra money because it can't go back into the fund.
The beauty of diversified buy and hold is that it allows investors to stay invested to reap the benefits of compound growth. Over a long period of time EMH does hold up pretty well.
Dark pools do report their trades so it's possible to access it, but internal matching goes unreported, that data is kept by each respective broker.
You can get reward too if you stake their own "made up" crypto token on your prediction, but that comes with the usual crypto volatility risks too, so I do not recommend staking as a beginner unless you have a top model and OK with the crypto risk. Also they use only the staked predictions in their meta model because they use the stake size as an indicator for confidence of the user in their model (they are creating a stake weighted metamodel)
It's not easy too be good at it and it's getting harder because they want not only good predictions but diverse set of models which help eachother to improve their meta model (that's the TC metric on their leaderboard of models). If you have some machine learning experience it's easy to get started with their example script and see how far you can get with hedge fund quality data. Boosted tree models are having good results but Neural Nets are more customizable so you can try more exotic models with them to have the diversity they are looking for.
Also one of their early investor is Howard Morgan the co-founder of Renaissance Technologies.
I wonder if in 100 years from now, people will casually be talking about their nice (but modest) London two-bedroom apartment they bought for 100m pounds.
You can see the number phenomenon today. People still talk about "winning £1M on the Lottery" like it'd set them up for a life of luxury. To reasonably replace even a median UK full-time salary for life you're going to need around ~£700K in assets. That leaves £300K for a modest home somewhere outside of London and the South East. One false move with your £1M winnings and you'll end up back in the office. The £ is worth half of what it was in 1994 when the Lottery started.
Bad stuff happens when a government gets these things wrong!
[1] https://www.history.com/news/titanic-facts-construction-pass...
https://steemit.com/money/@lixtiklipbalm/exchange-rate-of-br...
About a decade ago they renominated it. "New Turkish Lira" was born, where 1.000.000 Old Lira = 1 Lira.
So as another comment has mentioned, probably that would happen.
Between MMT, finanicialization of the economy, stock buy backs, Bretton Woods, tax codes, robo investing and indexing...
Interesting stuff but really not super helpful in assessing risk.
i wonder if that’s been perpetually true for all of history?
Back in 19th century, accounting standards weren’t as strict, information was not as widely available, and central banks didn’t exist. It was the Wild West so no wonder you had bubbles and long periods of draw downs
Today the US fed would quickly intervene to turn markets around. When Japan crashed in late 80s, they didn’t know QE was the answer so they struggled for a decade. When the US crashed for similar reasons in 2008, they knew QE would help and jumped on it. The stock market was back on track in a freaking year. It didn’t recover to the heights but it was trending on right direction.
To believe we would have similar long draw downs like the 19th century, you’d have to believe that something structural would change where current valuations would decrease: a shrinking economy (very unlikely), or capital flight elsewhere (also very unlikely given US track record).
The US economy has a lot of advantages and I’m having a hard time seeing a long term bear case for it
The US isn't doing anything on the scale Japan was doing but it's still less of a free market than it used to be. Keep in mind also that the US doesn't exist in empty space, the factories where American products are made are located in places like China and there are heavy financial links to this country that follows the exact strategy Japan had, with even more centralization and state ownership actually. This is also part of the US economy now, you can't just ignore that. It's a risk for the US economy, even some of the elites that heavily invested admit this now. Take Soros as a very late example.
If you mean for a pension (assuming there is no state-supplied minimum pension that you could live from if necessary), get a pension plan where it stipulates how much you'll get per month rather than something where you depend directly on the market's daily whims.
Very wide-spread ETFs are an exception due to their track record: if you are rich enough that you could survive a 15-year market recession then those are an option as well.
That's fair, but my point was that retirements saving are money one "cannot miss" (as in the original comment) or "can't do without".
And yet I think it has to be invested, for example in the options you listed, because keeping it in a bank account will only expose it to inflation, and hurt your retirement.
If you are a student at a university almost anywhere in the world that offers an MBA or other advanced degree in business or finance, it subscribes to the CRSP data service with 95+% probability. If you are an engineering or a CS student, the university contract covers you! You'll probably have to talk to someone over at the business school, but they'll get you access for all your ML research needs!
The main advantage over other data providers is that they publish their methodology and formulas, and have a full-time staff dedicated to data quality. Oh, and they're cheaper than everyone else (it's a service run by the University of Chicago instead of a for-profit corporation), so it has become the default academic data source. If you publish research using some other data, colleagues will want to know why.
By the way, the story goes that back in 1960, one of the big Wall Street firms wanted to know whether, since the depression, it was better to invest in big companies or little companies. They asked all the universities in and around NYC, who all told them that nobody knew. One of the executives was a U of C grad and asked them one day when he was in Chicago. They said that they had no idea but that if they gave them money they’d find out. When they published the study, everyone started calling and asking for access to the data, and thus the entire field of academic financial research was born :)
The study was done on a univac 2 and it blew people’s minds that such quantities of data could be analyzed in one go.
The St. Petersberg Stock Exchange closed in 1914, reopened briefly for a short period in 1917, and then did not reopen thereafter.
But a comparison of it to the US between 1864 and 1914 is available:
https://www.investmentoffice.com/Observations/Markets_in_His...
If that doesn't work, it's likely nothing will have (besides gold and ammo).
This work is interesting because few people were really doing charts at the time. Prices were recorded as quotes (price+volume) on a "tape" and most people would just read numbers. "Indices" would barely exist and people would construct their own with a poor understanding of how to weight companies in an average (most averages were weighted by stock prices, instead of market capitalisation). And people would talk in $ moves a lot instead of %, meaning that for a lot of people gaining $1 on a $30 stock would be the same as gaining $1 on a $100 stock.
I’m surprised to see no mention of geometric mean.
People far too often incorrectly use Arithmetic Mean (“average”), which doesn’t compute correctly due to the compounding nature of the stock market.
https://www.investopedia.com/articles/investing/071113/break...
First, it does not "overstate" the annualized returns. It just brings a particular view of them, which is the "expected annual return" vs the "compoundable annual return". Both are perfectly equivalent and represent different ways to look at annual returns. I would expect most practitioners to expect the former.
Second, this debate is completely irrevant here, as all charts show cumulative returns based on a $1 investment.
I was looking up NRGV, the fraudulent energy storage company (the one with concrete blocks and cranes) which hit $2.4B last year and then fell to a sixth that, before drifting up a bit.
According to analysts, if I read the summary right, it should be considered worth $1B, short-term, and $0, long term. Last I checked it had $90M in cash, down from $100M a few weeks ago.
Now, with $90M they could buy an actually viable energy storage technology to (most likely) run into the ground.
What are these analysts thinking, recommending BUY of a fraudulent company with no better prospects than your average fusion start-up or Hyperloop, and already trading at several times its objective value? Is it a judgment about where ignorant investors will take a no-future company that has been well-hyped, a la Tesla? And, could they be right?
Strong from a previous “strong buy” is very different than a strong from a previous of “hold” or even “sell”.
Is there a nuance to this publishing process that makes this make sense?
This can sometimes be an artifact of submitting for peer review where tables and figures are uploaded as separate documents than the manuscript and then combined into a single document. I think this makes it easier to format the tables and figures for a journal.
Had I put it into some fancy ETF (Recall Vanguard dates back only to 1975, but whatever) I'd be a billionaire.
That's it, that is the entire difference of less than an order of magnitude. Don't reckon the nickels and the dimes matter much to centenarians.
Most people don't even have $8000 to invest so they plow it all into crypto and beanie babies and we scoff at them trying to x10. Food for thought. Memento Mori.
Edit for clarity: I obviously didn't mean stash cash under the mattress. Sorry for the confusion.
On the other hand:
> If I was alive in 1922 and stashed away $8 million in cash it would only be worth about $140 million today.
Why would it not be worth $8 million?
Plugging it into a USD inflation calculator checks out.
[1]: https://www.multpl.com/10-year-treasury-rate/table/by-year> Why would it not be worth $8 million?
If you just hold on to it your 1923-dollars have become 2023-dollars, but there's still exactly $8 million of them. You've lost nearly 95% of the value.
> your 1923 dollars were likely silver dollars
It's unlikely that you had 200 metric tons of silver coins stashed away.
I think the grandparent was imagining they were silver certificate dollars[1], not actual silver dollar coins. That said, silver certificate dollars needed to be converted at some point in the past, in 2023 they can't be converted and only have collector value, and $8 million worth would dilute their collector value substantially.
[1]:https://www.investopedia.com/articles/markets-economy/090116...
In any case eight millions are several metric tons.
Also banks weren't really safe that entire time!
mice ate some.
Anyway, that's what you get for not contributing to money velocity. It's not designed as a savings product, so don't save with it.
Stashed it away as cash where? If you had $8M in 1923 and kept it under a mattress, it would still be $8M today - the difference is due to inflation - in 1923 you would've been the equivalent of a Billionaire today - and today... you'd have $8M.
I think things like this matter a lot.
If you invested in treasuries or only had a savings account with interest - you're going to get eaten alive by inflation, and over a long period of time - your wealth will decrease enormously - maybe as much as 50%+ (with a savings account).
If you instead had invested in the S&P - and it did what it did over the last 100 years - you'd have 2-3x what you started with in real terms.
Although, past performance != future performance. No one knows what the future will hold. Maybe the US won't even be around. Maybe we'll move to socialism. Maybe private companies get overrun with crooks and everyone loses most of their money because the whole S&P goes Enron/Wirecard. Who knows!
But my guess is I'll be better off with equities than cash medium & long term. And fortunately, I'm not too concerned about short-term.
Saving account interest rates haven't been 0% for the whole last 100 years.
It's not a great investment, but you'd have substantially more than $8M.
Apparently the $140M number was bonds. Edit: Or, theoretical bonds that match inflation and don't actually exist?
No one would ever give the government money expecting to lose money.
Only in a world where you can always count on the government to lower interest rates ad-infinitum to keep itself solvent which pushes up the value of your bonds to someone who's willing to pay more money to lose the same amount of money later (a greater fool - although, are you a fool if you've been able to count on this like clockwork for the last 30 years?).
What would they do? Is there a dominating (stochastically) alternative?
How about a hypothetical?
Let's say government bonds pay 3%, they have done so for decades, and we're confident they will keep doing so for decades.
So right off the bat, no lowering of interest rates ad-infinitum.
Let's also say inflation is 4%.
Everyone wants to beat inflation. But you need to find an investment opportunity for that. And the higher an investment yields, the riskier it is.
If you can't find a good investment, what's plan B? Surely it's not putting your money in a vault and losing 4% a year. Isn't plan B buying the government bonds and losing only 1% a year?
Almost nobody has bought government bonds for a long time besides pension funds (due to obligations), banks (due to regulations), foreign governments (due to ForEx necessity), the Fed, and a pretty small amount (~8%) held in 401ks (overwhelmingly by older folks) [2].
Rich people certainly aren't buying Treasuries to protect their wealth - unless it's someone like DoubleLine betting on interest rates only going down and the forced greater fool (pension funds).
401k people are only buying treasuries because of the "age old wisdom" - not because it makes sense unless you think like DoubleLine that treasury yields - long term - are only going down.
[1] https://fred.stlouisfed.org/series/AAA10Y
[2] https://www.thebalancemoney.com/who-owns-the-u-s-national-de...
The reality is - a small percentage of treasuries are owned by individuals (including - and mostly - 401ks) - I linked to the data above.
Anecdotal evidence that you helped some people buy treasuries does not dispute that.
Something like ~5% of treasuries are not owned by The Fed, Foreign Governments, Pensions, 401ks, and Banks.
The vast majority of that is owned by bond traders. You're talking about maybe $600B owned by a group of people that has >$30T in wealth. That is basically nothing.
If you had a bunch of gold, for example, you'd have to pay for security to... secure it.
People are willing to "pay a premium" to store money somewhere risk-free.
I wish I still had my pogs! (Almost not kidding that it's due for a re-commercialization or embedded marketing for some comic book franchise)
See page 44.
What's your definition of "underwater (in real terms)"? That investment would have been paying dividends for decades. What happens with those cash flows?
I think we are near a change into this paradigm.
Or alternatively, have a basic macroeconomic understanding knowing when enter/exit the market. This might not let you pick up the top/bottom but at least is more intelligent than "staying in the market because it was always trending up".
https://www.bogleheads.org/wiki/Bogleheads®_investment_philo...
The purpose of financial advisors is to stop people from thinking; if you just stop thinking on your own you'll never need one.
The only difference i'd suggest for people who want to spend 1% more mental capacity is to mix their ETF up so they have global and other-assets exposure.
People like to feel in control, like to gamble, like to be clever, like to know a secret trick. But they are just lying to themselves.
No matter the macroeconomical circumstances, there's no magical risk/return profile that will beat stocks until there's a significant paradigm shift (and no, a minor recession after a period of weird monetary policies isn't it)
Sure, fossil fuels in the form of coal has been exploited before, but nothing on the scale of coal/gas/oil use that started after the Great Depression and ramped up to peak per capita consumption circa 1970s if memory serves.
So you always have to look at that historic period discounting that, and the massive population growth that came with it.
Tech advancements are slowing down and so is population growth.
Solar, wind, or whatever Future Tech is unlikely to have the same direct mine->refine->commodity->sell->use cycle on which a lot of this edifice is built.
This could be quite relevant for current generations before they retire, but even more so for my children's generation.
You can already see the political fallout with various ugly regimes in various petro-states starting to panic. Wait until people's 401Ks start to explode.
Maybe we shouldn't have moved to such a completely moronic system them which shifts all the risk to the individual and just "hope" they magically make money on something they have no control over.
It all works until it doesn't.
What’s that mean? Solar is providing energy at similar costs.
That and a huge % of the stock market's value right now is built up of energy companies. Especially here in Canada.
Trudeau should rejoin the Paris Accords and move to the secondary and tertiary sectors (or as Mulcair put, get rid of Dutch Disease), or Canada (and everybody else) will be fucked.
But there's still boatloads of people over-invested in it who are going to be in for a rude awakening if humanity actually gets its shit together.
Solar is within oil's error bars on a cost per kWh basis. Sure, there are kinks in storage and transport to work out. But the fundamental cost of energy doesn't look likely to change in the coming century.
Solar can still provide all of that, but it's not a revolution, just a substitute.
Are they? I think they've been slow for maybe the last 20 years, but it seems like the advances in things like AI and Genomics are rapidly accelerating and may lead to growth like we haven't seen in several decades...
Really? 20 years is the difference between a generation being raised pre/post:
* smart phones
* streaming services (endless free content)
* massive computing storage / processing upgrades
* mass adoption of eCommerce
* video calling
* ubiquitous social networking
* EVs
* mRNA vaccines
* Mars exploration
* LHC
* 3D printing
It amazes me to look back at 2003 and see how far we’ve come.
2000 to 2020 is the least impressive 20 year period by a long shot.
I feel that the improvement in the previous 20 years was much more massive.
Forty years ago PCs had been introduced quite recently and an internal disk was still a non-standard option.
Ditto for “smart phones”. Forty years ago 1G telephony was not yet available in the US, nevermind how dumb and bulky those phones were.
What have you got to place against that, smartphones? Streaming, seruously?
The last 20 years have been more revolutionary from a digital / social / information perspective. A person in a remote village in a foreign country can now use StarLink to access the world’s information on Wikipedia. They can learn any new skill on YouTube. And they can work for a large US tech company via Slack / Skype, or open up a small business on Shopify and accept money instantly in any currency. Translation across any two languages can be done instantly via smartphone. It’s transforming cultures, countries and the global marketplace.
It doesn’t have the visual of a moon landing, but it’s still incredible and has more practical implications for a larger number of people.
I don’t think we’ll really start to see how massive the impact is until another 20 years when we look back and see the ripple effects of this digital connection we’re creating throughout the world.
I got my first mobile phone in 2002. Mobile phones had been around for a while but at least in Australia phone plans were very expensive and it was not really affordable for my parents to pay for a phone for me while I was in High school.
A few of my friends had phones towards the end of High School (maybe 40% of people had a phone by end of school) but mostly you would call people's land lines to get in touch with them. The most popular phone at the time was the Nokia "Brick phones" like the 3210.
My first phone was a Motorola I can't remember the model but it was absolutely privative compared to modern day phones - it had a monochrome screen, no camera or anything like that. About the only cool feature was it had was a polyphonic ringtone which was pretty advanced for the time. A Few years later (2005ish) I upgraded my handset to a "flip phone" which had color screen and a camera (but camera quality was shocking everything just a mess of pixels).
I want to say it was maybe 2007 or 2008 when I started to get data (i.e. internet) on my phone it was really slow (and expensive) but I remember looking up a train timetable on my phone and thinking it was revolutionary, having the internet in your pocket genuinely felt game changing.
I purchased a computer with money I saved up working over the summer before I started Uni. It was a Pentium 4 with a 2 ghz Clock speed. It ran Windows XP (Cheaper lower end computers at the time had Windows Millennium Edition, which was complete garbage). It had a 19 inch CRT monitor which weighed a tonne. "Flat panel" LCD screens were available but were very expensive.
ADSL internet had just started coming out in Australia, before that it was 56k dial up or cable (which was extremely expensive I only knew one person with cable internet). I used to play games like Starcraft and Diablo 2 over dial up around this time period, if my Mum picked up the phone to make a call the internet would drop out.
DVD's were relatively new technology. I got the Collectors Edition DVD of Peter Jackson's Lord of the Rings as a Christmas gift, it is still one of my prized possessions.
If my 18 year old self was to look around my home today he would be in awe of how much the technology has changed.