🚀 go-pugleaf

On Sun, 2 Feb 2003 08:51:23 +0000 (UTC), Don Klipstein 
<don@manx.misty.com> wrote:
>In article <slrnb3ph3g.hm.joel-garry@zr1.vista1.sdca.cox.net>, Joel Garry 
>wrote in part:
>> Don Klipstein ><don@manx.misty.com> wrote:
>
>>>  Real estate will not spend decades on end giving double-digit annual 
>>>rate of return.  The stock market will do a little better, although bonds 
>>
>>Not true about the stock market.  That rate of return is an accounting 
>>fiction which does _not_ include write-offs of companies that go belly-up.
>>A true rate of return would include that.  Remember, Polaroid was once a
>>solid stock.
>
>  Sorry to hear your misinformation, but total USA stock market rate of
>return is already discounted for stocks that belly-up.

Eh?  Please say how.

>
>  Now for what a reasonably expected rate of return should be:  USA annual 
>GDP growth plus the reciprocal of average USA stock P/E ratio, however 
>appropriately weighted.  Ever since the Industrial Revolution, USA 
>economic growth has outpaced inflation by almost 3 percent per year!  Add 

Historical trending is a big mistake here.  It assumes what will be true
in the future is the same as the past, and that does not hold up with 
changing, er, paradigms.  

>to this the reciprocal of P/E ratio - this yields reinvestment of USA 
>publicly-traded corporations into themselves and/or each other - even at
>the current/recently inflated 25-30 (compared to historical 15) PE ratio
>this means annual rate of return 3.3-4 percent ahead of USA population 
>growth and inflation.  Subtract a bit for buyers following the herd and 
>buying high, and this still means probably 2-3.5% annual rate of return 
>beyond the sum of inflation and population growth.  Detract from that 
>increase in the number of competing corporations - but for over half a 
>century the 500 biggest publicly traded corporations in the USA have held
>a roughly 60-70% piece of the stock-exchange-traded pie!

Funny, but that half a century conveniently misses the huge world-wide
economic meltdown.  The one, along with wars and other big bad things,
that come every 60 to 70 years.

>  Sounds like a broad USA stock index mutual fund should in the very long 
>term have an annual total return at least 7-8%, with some mobility towards 
>the 9% average experienced even from the 1929 high until now.  Compare to 

You are looking at it from peak to peak.  The problem is, you need a 
shorter time period, and you don't know the period of peak to trough.

>real estate price appreciation - how do you project most peaple to have 
>such wage growth to afford such a thing?  I do agree that real estate will 

Fixed mortgages.

>outperform inflation at least a little bit and will probably outperform 
>long term trends in commodities, but stocks reinvest profits of businesses 
>(or let you do so, mostly automatic with mutual funds) and that means a 
>few percent total return beyond the combination of inflation and economic 
>growth.

Stocks are overly focussed on quarterly returns, so do _not_ maximise
profit reinvestment.  With the coming tax changes favoring dividend payouts,
that will be even worse.

>
> - Don Klipstein (don@misty.com)

jg
-- 
These opinions are my own. 
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