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“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009” This is like 9% compounded for 13 y

“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009” This is like 9% compounded for 13 years, which is in line with historic averages.

antonomon 4y ago
It continuing unabated for 13 years is a historical anomaly, however
- awinder 4y ago
  We’ve had 3 bull cycles that lasted around 13 years covering periods in the 50s, 80s and 90s. https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Extension/county/Latah/finance/history-of-bull-and-bear-markets.pdf https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten... The +9% average is long-lived and covers periods with drawdowns so no abnormality there.
dnissley 4y ago
Hm, but we've had zero interest rates that entire time so shouldn't we have expected even higher returns? E.g. what would the 90s have looked like with zero rates?
- shock-value 4y ago
  Lowering rates will give a boost to the stock market in the short to medium term. In the long term, returns will settle closer to the interest rate in question (plus a risk premium). See: Japan over the last couple of decades.
  - imtringued 4y ago
    It is kind of interesting how this was the core observation of Keynes. It isn't capital that dominates the markets it is money. According to classical economics people either spend or save, there can be no such thing as indecisiveness or paralysis. What this means is that a too low interest rate would immediately cause inflation and therefore result in a higher nominal interest rate because the rate of capital formation is too slow. In practice we haven't observed any capital shortages that weren't the result of a one off event. The interest rate appears to be the only barrier and the return on capital followed it in countries excluding the USA.
- carlivar 4y ago
  And by that thinking, if we could only manage historical averages during pronounced low interest rates, what does it say about the prospect of returns for the next few years?
015a 4y ago
The iShares S&P 500 ETF has returned about 11.6% annualized over the past ten years. Their Ex-US ETF: 2.8%. Point being: the third variable no one ever takes into account when considering Buffett's advice: "just invest in broad market indexes" literally only works in the US, and only has worked historically. It's not a coincidence that the US is the youngest developed economy on the planet. In other words: How high would US stock returns have been if interest rates were near-0% throughout the 1900s? Have interest rate adjusted returns actually decayed in the past ten years? How long before the US stock markets stop behaving "historically" and start behaving "globally"? I'm not asserting entire bearishness on the us economy. The US is still the nerve center of global finance, software technology, education, retail spending, every economic metric you look at the US leads in. That doesn't disappear. Just that: the story of the next twenty years may be the US financial indicators trending more toward historical global norms.
- zamfi 4y ago
  Maybe it only works in the US equity markets, but that's not "only works in the US" -- the S&P 500's companies are: not all based in the US, and in total derive only 75% of their revenues from outside the US. For reference, the US share of world GDP is about 25%. It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world they started or where their revenues originate. I'm not saying anything about interest rates -- your point there might be spot on -- but US stock markets have huge global exposure, and your implied assertion that there's some kind of "global" benchmark equity growth rate doesn't seem that sound.
  - BeetleB 4y ago
    The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there. The fact that the companies get a lot of their revenue from other countries is moot. In those countries, investing in index funds is not the highest performing long term investment.
wyldfire 4y ago
I wonder if devastating global wars (and pandemics) over the previous century(ies) makes for a confusing baseline to construct "historic averages".

antonomon 4y ago

It continuing unabated for 13 years is a historical anomaly, however

awinder 4y ago
We’ve had 3 bull cycles that lasted around 13 years covering periods in the 50s, 80s and 90s. https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Extension/county/Latah/finance/history-of-bull-and-bear-markets.pdf https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten... The +9% average is long-lived and covers periods with drawdowns so no abnormality there.

dnissley 4y ago

Hm, but we've had zero interest rates that entire time so shouldn't we have expected even higher returns? E.g. what would the 90s have looked like with zero rates?

shock-value 4y ago
Lowering rates will give a boost to the stock market in the short to medium term. In the long term, returns will settle closer to the interest rate in question (plus a risk premium). See: Japan over the last couple of decades.
- imtringued 4y ago
  It is kind of interesting how this was the core observation of Keynes. It isn't capital that dominates the markets it is money. According to classical economics people either spend or save, there can be no such thing as indecisiveness or paralysis. What this means is that a too low interest rate would immediately cause inflation and therefore result in a higher nominal interest rate because the rate of capital formation is too slow. In practice we haven't observed any capital shortages that weren't the result of a one off event. The interest rate appears to be the only barrier and the return on capital followed it in countries excluding the USA.
carlivar 4y ago
And by that thinking, if we could only manage historical averages during pronounced low interest rates, what does it say about the prospect of returns for the next few years?

015a 4y ago

The iShares S&P 500 ETF has returned about 11.6% annualized over the past ten years. Their Ex-US ETF: 2.8%. Point being: the third variable no one ever takes into account when considering Buffett's advice: "just invest in broad market indexes" literally only works in the US, and only has worked historically. It's not a coincidence that the US is the youngest developed economy on the planet. In other words: How high would US stock returns have been if interest rates were near-0% throughout the 1900s? Have interest rate adjusted returns actually decayed in the past ten years? How long before the US stock markets stop behaving "historically" and start behaving "globally"? I'm not asserting entire bearishness on the us economy. The US is still the nerve center of global finance, software technology, education, retail spending, every economic metric you look at the US leads in. That doesn't disappear. Just that: the story of the next twenty years may be the US financial indicators trending more toward historical global norms.

zamfi 4y ago
Maybe it only works in the US equity markets, but that's not "only works in the US" -- the S&P 500's companies are: not all based in the US, and in total derive only 75% of their revenues from outside the US. For reference, the US share of world GDP is about 25%. It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world they started or where their revenues originate. I'm not saying anything about interest rates -- your point there might be spot on -- but US stock markets have huge global exposure, and your implied assertion that there's some kind of "global" benchmark equity growth rate doesn't seem that sound.
- BeetleB 4y ago
  The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there. The fact that the companies get a lot of their revenue from other countries is moot. In those countries, investing in index funds is not the highest performing long term investment.

wyldfire 4y ago

I wonder if devastating global wars (and pandemics) over the previous century(ies) makes for a confusing baseline to construct "historic averages".