{"items": [{"author": "Victor", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361397843979997", "anchor": "fb-361397843979997", "service": "fb", "text": "I think the financial advice sites dishonestly predict high returns to get customers. In the long run, it is better to invest in an index fund than have a \"personal\" financial advisor helping you reach your \"investment goals\".", "timestamp": "1365343093"}, {"author": "David German", "source_link": "https://plus.google.com/111229345142780712481", "anchor": "gp-1365349578851", "service": "gp", "text": "Dimson, Marsh, and Staunton's approach is really interesting. \u00a0It's the most credible pessimistic case for equities I've heard, but it ultimately rests on a few assumptions about the present and future that I don't buy:\n
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\n1. The destruction that occurred in the 20th century should be expected to repeat in the 21st.\n
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\nI don't think there will ever be another Communist revolution or world war, so I'm perfectly willing to accept that kind of \"survivorship bias\" in my estimates.\n
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\n2. The conditions in the US in the 1950-2000 era that caused investors to underestimate equity (and thus drive outsize equity returns) are not repeatable.\n
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\nIn the US, I expect technological progress 2000-2050 to dwarf 1950-2000, and I don't think investors are fully accounting for that. \u00a0Worldwide, I think we're poised to see a billion-plus people enter the consumer/investor middle class in the way that Americans did 1900-1950, and investors aren't fully accounting for that either. \u00a0\n
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\n3. Current bond prices do not reflect an increase in risk aversion.\n
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\nThey barely devote a paragraph to this claim, but IMO it's the least convincing of all. \u00a0I think we're sitting on top of an epic risk-aversion-driven bubble in bonds and bills, partly because of aging populations in North America and Europe, and partly because retail investors are still badly spooked by the 2009 crash, persistently high unemployment, their own household balance sheets, and fiscal uncertainty in Europe. \u00a0If I'm right, then the risk premium for equities is higher than Dimson et. al. think.\n
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\nAs a long-term investor, I'd rather look at the value companies are actually generating than attempt to divine the reservation premia of other investors. \u00a0This points to a simple approach that I find appealing. \u00a0The P/E on the S&P 500 (April 5 close) is 17.96, so I expect roughly 5.5% real return from US equities going forward. \u00a0", "timestamp": 1365349578}, {"author": "George", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361506070635841", "anchor": "fb-361506070635841", "service": "fb", "text": "Do you agree that your expectation is below the historical returns of broad small cap equities index funds from 1926-2012? Is your point that the future will not be like the past? Or are you trying to say that people are thinking about the historical returns the wrong way?", "timestamp": "1365353218"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361571397295975", "anchor": "fb-361571397295975", "service": "fb", "text": "@George: \"broad small cap equities index funds from 1926-2012\"
That's US-only, specific years, small cap, equities. Lots of restrictions. How did you choose them? If these choices go back causally to \"those did well over that period\" then you have a selection bias issue.", "timestamp": "1365364237"}, {"author": "George", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361608760625572", "anchor": "fb-361608760625572", "service": "fb", "text": "I really think the long term inflation adjusted return for the US stock market has historically been closer to 6 or 7 percent than 3.5%. Whether you think this will continue or not is another question. Is your point that you want to assume that the future returns of the US stock market are more like the historical returns of stock markets in other countries than they are like the historical returns of the US market? Or that you are going to be investing heavily in non-US stock markets?", "timestamp": "1365374227"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361907323929049", "anchor": "fb-361907323929049", "service": "fb", "text": "@Jacy: how did you pick the S&P 500? Because it did well, right? Which means there's a selection effect. Dimson, Marsh, and Staunton look at lots of countries and lots of indexes to try and get around that effect.", "timestamp": "1365441075"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361909463928835", "anchor": "fb-361909463928835", "service": "fb", "text": "@George \"you want to assume that the future returns of the US stock market are more like the historical returns of stock markets in other countries than they are like the historical returns of the US market?\"
Pretty much. I think the reference class for predicting this is \"stock markets\". Trying not to use any information from the present, if you were in 1900 would you have have picked out the US stock market as the right place to put your money?", "timestamp": "1365441580"}, {"author": "George", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=361948720591576", "anchor": "fb-361948720591576", "service": "fb", "text": "Jeff, I pick the US market because I am a US citizen. There is really no other reason. I think your argument for a selection bias is ultimately silly because then why would we consider stocks and not bonds? Or real estate? Or gold? We should average over different asset types! Otherwise you have a selection bias from looking at stock markets! OH NO. The more you start to average over things and refuse to condition on data, the more information you throw away until you end up with no information at all and are making up a rate of return you expect from nothing. If the particular rate you come up with has a huge effect on what you do, then you have a very brittle way of selecting actions to take. My actions are robust to small changes in my beliefs about the real rate of return I can anticipate from my investments.", "timestamp": "1365449897"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=362031217249993", "anchor": "fb-362031217249993", "service": "fb", "text": "@Jacy: \"I'm picking it because it's a general, safe bet used to reference other long-term investments\"
How did it become viewed as a \"general safe bet\"? We think of the US stock market as the standard because it did well. For people all over the world, was the S&P 500 a clear safe bet in 1940? Were there other options at the time that looked equally good but now looking back have turned out to do much worse?", "timestamp": "1365468973"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=362034647249650", "anchor": "fb-362034647249650", "service": "fb", "text": "@Jacy: \"I don't see why anyone would be forced to restrict their investments to global\"
Practically we are all restricted to global investments, because for the most part anyone can invest in any country's stock market. Professional investors putting way more time into this than we can will capture most of the gains from predicting when one market will do better than others.
Imagine it was obvious to anyone who looked that the US stock market was a better investment than any other countries. Money would flow into the US market, raising its price, until it no longer had better long term growth prospects than other markets.", "timestamp": "1365469871"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/361382557314859?comment_id=362170297236085", "anchor": "fb-362170297236085", "service": "fb", "text": "@Jacy: \"I think a reasonably intelligent investor would easily have chosen to invest in US stocks as a safe long-term bet anytime in the 20th century\"
This is definitely where we disagree.", "timestamp": "1365509054"}]}