A good way to have a great annual return in year y+1 is to have a 21% decline during December of year y.

2016: +11.96%

2017: +21.83%

2018: -04.38%

2019: +32%

(All numbers are total return, the 2019 source didn't have fractions of a %)

That's not a bad four years' return.

(Yes, December 2018 had a big decline -- but the first 11 months of the year were pretty good, and we ended only 4.38% off even with the 21% decline in the last month)

What is the significance of four years? Personally, I prefer to talk about my three year return.

I wasn't trying to make a special significance by looking back exactly four years -- I picked 2016 as a starting point because I felt that it gave enough context to show that the big drop in December 2018 was a little blip in what is actually a huge uptrend.

If that was a little blip, then the uptrend clearly started in 2009.

An election cycle.

There were elections at the end of 2015 and 2019? Now you tell me!

Oh, damn, I forgot to vote in them!

No wonder the world has gone to hell!

The value of the index tells very little. You must compare market cap to something and look at the ratio.

Here is good summary of important ratios December 27, 2019 https://www.yardeni.com/pub/valcapsales.pdf SP500 price to sales, price to earnings, market capitalization, TOBIN’S q.

We don't know what happens, but it's certain that if you buy SP500 at current price level, you must accept significantly smaller return next 10 years than previous 10 years.

What do you mean “tells you very little”?

You invest $1 in S&P at beginning of the year and now it’s $1.28.

Also means that a dollar invested stocks today buys you 22% less stock than a year ago. Basically this is inflation nothing more.

Inflation..? What? We’re in a very low inflation environment right now. The Fed is actually trying to figure out how to get inflation to the target 2% annually. Unclear if they met it or not.

We have had over 2% for the last 3 years. That’s already pretty high

We've been conditioned to think of inflation as the rising cost of toilet paper and gasoline. But not in other things like stocks, bonds, rents and real estate. In theory the last two are part of orthodox inflation but they are heavily gamed. We've also been conditioned to think in terms of rates but not integrated over time.

Some things are more volatile than others. Since nothing can increase in price faster than inflation forever, there's no point in including the volatile things in your index. This is why inflation indexes commonly leave out energy. People say "but everything uses energy!" as if this was a problem - yes, everything uses energy, so the long-run increase in energy prices will be reflected in everything else, so it doesn't need to be explicitly included.

Number of Hours of Median Wage Pay Needed To Buy 1 Share of S&P 500:

   1964: 29
   1974: 18
   1984: 22
   1994: 39
   2004: 73
   2014: 92
   2019: 124
   2020: 138

What's your source, and point?

Average volatility (annualized) of the stock market has been about 14% historically, and sometimes goes up to 30%.

So I don't think that a 28% return in a year is enough to say definitively that stocks are up. It can easily be random noise.

It’s up.

Somebody said that in an efficient market prices are within a factor of two of correct. People are so caught up in the fact that we have prices of everything to fractional pennies every microsecond, that they can't conceive of just how much is false precision.

Can't you begin by admitting that there is some uncertainty, that every price implicitly has some +/- amount associated? And next, consider that when an entire company is purchased, it usually costs a lot more than the immediately prior trading price, showing that separately from uncertainty, there is a big range between different shareholders?

Isn’t 2009-2019 gain much greater than 1999-2009 gain? What makes you think that the next 10 years will generate smaller return?

People always predict the future from the past, but there are different ways to define a pattern.

Many people think that since the US stock market returned 8-10% for the last ~30 years, then it will for the next 30. This has worried me for a long time for various reasons, but nobody seems interested in my reasons.

However, a new way of looking at things occurred to me recently. In the early 80s, 30 year treasury bonds were ~10%, and with hindsight, stocks were very good buys too. If you bought either one and held until now, you would have made a pretty similar amount. So, if the future resembles the past, maybe what we should expect is that the stock market return for the next 30 years will be the same as the interest on a 30 year treasury today. Nominal, not inflation adjusted, which means ~2.3% is the best case scenario, and civilization collapses if inflation returns. Also, since dividends are about 2% and inflation is not zero, that means after tax returns for non-retirement funds are going to be essentially nothing.

> What makes you think that the next 10 years will generate smaller return?

Look at the link I provided.

If you have goose that lays golden egg worth $1000 every year, and the price of the goose goes from $20,000 to $30,000, how does the ROI (return of investment) change?

Valuation of thing relative to valuation it provides is important. All the factor of economic growth in OECD countries are declining so you should expect lower ROI (once the effect from increasing leverage stops).

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