Author Topic: Will the stock market go up at 7% forever?  (Read 5579 times)

ePalmtrees

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Will the stock market go up at 7% forever?
« on: February 05, 2018, 03:42:40 PM »
We've all heard the US Stock market has averaged 7% growth a year, and that's what we've come to expect. But why do we expect to see that continue? Is it realistic? Could the US be a maturing market?

The birth rate in the US has been dropping and is at a historic low, so an exploding population won't fuel more growth. Most blue chip stocks have already saturated most of the country. There's already a McDonalds in every town, right?

Are things ever going to sort of level out? Why should we expect the market to continue to rise, or to continue to rise at the same pace that it has been? We aren't exactly an emerging market with a ton of growth ahead of us.

Right now our market is overinflated in terms of price to earnings ratio, so you could call it an irrational market right? What if the actual growth behind it has slowed and all that will continue to make it rise is the now irrational money being thrown at it, or basically speculation?

I'm not referring to dips and recessions, but overall growth.

I'm just wondering if we can continue to expect the market to appreciate at an average of 7% based on history or if it's possible for for an entire stock market to mature and slow when companies start to reach saturation/their full potential.

mathlete

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Re: Will the stock market go up at 7% forever?
« Reply #1 on: February 05, 2018, 03:48:26 PM »
Yes.

mathlete

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Re: Will the stock market go up at 7% forever?
« Reply #2 on: February 05, 2018, 04:04:30 PM »
Serious answer:

Here is a list of S&P 500 components by weight. https://www.slickcharts.com/sp500

Go down the list until you find a company that isn't a global brand.

Check out this market watch column that estimates that as much as 48% of S&P 500 revenue comes from outside the United States: https://www.marketwatch.com/story/sp-500-companies-generate-barely-over-half-their-revenue-at-home-2015-08-19

The US birth rate is low, but net migration remains strong: https://en.wikipedia.org/wiki/List_of_countries_by_net_migration_rate

No one knows what the stock market, or the economy writ large will do in perpetuity. But I don't particularly see low birth rates or saturation as an obstacle unique to US companies right now.


Travis

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Re: Will the stock market go up at 7% forever?
« Reply #3 on: February 05, 2018, 04:31:33 PM »
I think it was around 1897 that the US Patent office said "there's nothing left to invent."  Look at those same companies and figure out how many of them or the product/tech they sell even existed 20-30 years ago.  Americans are quite creative at finding new ways to turn a profit.

Jrr85

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Re: Will the stock market go up at 7% forever?
« Reply #4 on: February 05, 2018, 04:43:41 PM »
We've all heard the US Stock market has averaged 7% growth a year, and that's what we've come to expect. But why do we expect to see that continue? Is it realistic? Could the US be a maturing market?

The birth rate in the US has been dropping and is at a historic low, so an exploding population won't fuel more growth. Most blue chip stocks have already saturated most of the country. There's already a McDonalds in every town, right?

Are things ever going to sort of level out? Why should we expect the market to continue to rise, or to continue to rise at the same pace that it has been? We aren't exactly an emerging market with a ton of growth ahead of us.

Right now our market is overinflated in terms of price to earnings ratio, so you could call it an irrational market right? What if the actual growth behind it has slowed and all that will continue to make it rise is the now irrational money being thrown at it, or basically speculation?

I'm not referring to dips and recessions, but overall growth.

I'm just wondering if we can continue to expect the market to appreciate at an average of 7% based on history or if it's possible for for an entire stock market to mature and slow when companies start to reach saturation/their full potential.

Forever?  No. 

In the foreseeable future?  There is nothing magic about the 7%; we were effectively at 0% growth outside of population growth until the industrial revolution.  And there are plenty of things to worry about.  Pretty much all of the developed world has promised soon to be retirees that they are going to heavily tax younger, poorer people and then give that money to richer, older (but often not very old) retirees.  It's not clear how that's going to shake out.  Even for countries that have not promised a disproportionate share of their future output to retirees, there can be demographic problems (e.g., it also looks like China's one child policy is going to ensure it gets old before it gets rich).  And there's always the risk that one or more of the more important countries in the world decide to pull a Venezuela and essentially vote for self immolation (particularly as voters have to decide who is going to take the hardest screwing to deal with their respective entitlement crises). 

But, while people like to focus on the bad, things have been getting much better, much more quickly in the world as a whole.  It seems just as likely that we are going to have accelerating growth as AI gets better and more and more of production is automated as it does that things will get worse (or even just stop getting better) for the world as a whole. 

ePalmtrees

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Re: Will the stock market go up at 7% forever?
« Reply #5 on: February 05, 2018, 04:52:55 PM »
Serious answer:

Here is a list of S&P 500 components by weight. https://www.slickcharts.com/sp500

Go down the list until you find a company that isn't a global brand.

Check out this market watch column that estimates that as much as 48% of S&P 500 revenue comes from outside the United States: https://www.marketwatch.com/story/sp-500-companies-generate-barely-over-half-their-revenue-at-home-2015-08-19

The US birth rate is low, but net migration remains strong: https://en.wikipedia.org/wiki/List_of_countries_by_net_migration_rate

No one knows what the stock market, or the economy writ large will do in perpetuity. But I don't particularly see low birth rates or saturation as an obstacle unique to US companies right now.

That's helpful, thank you.

SeattleCPA

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Re: Will the stock market go up at 7% forever?
« Reply #6 on: February 05, 2018, 04:54:07 PM »
You might be interested in my argument that people need a "retirement plan b" because there's lots more variability than people expect.

https://evergreensmallbusiness.com/retirement-plan-b-need-one/

I am convinced that the outstanding results that basically all long-term equity-centric investors have received in the last three decades have scrambled our understanding of risk.

sol

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Re: Will the stock market go up at 7% forever?
« Reply #7 on: February 05, 2018, 04:57:27 PM »
As a counterpoint, let me offer you the optimist's perspective:

Focusing on the US is a mistake.  Focusing on westernized first world nations is a mistake. 

There are approximately 7 billion people (and growing) on the planet right now.  Approximately 1 billion of them live a "modern" lifestyle with power and water and television and a McDonalds on every corner.  The other 6 billion are desperate to raise their standard of living to what you and I enjoy.  They crave cell phones and washing machines and SUVs and baby powder and bank accounts.  In the coming century, a good portion of them will undergo the same explosive increase in standard of living that Europe and the US once saw as we went through the same transition.

The demand from those countries will be met by global corporations, most of which are based in the US.  Those corporations will profit as they stop trying to compete for market share in the US, and add an entire US population worth of new customers every year in China and India and Indonesia.  US stockholders will profit.  US workers, maybe not so much.

Protectionist trade policies could still sink us, of course.  If Trump manages to cut off US companies from global markets, we'll all miss out on this coming century of prosperity.  But if we can let free trade run its course, I think we'll be fine.

SeattleCPA

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Re: Will the stock market go up at 7% forever?
« Reply #8 on: February 05, 2018, 05:13:30 PM »
As a counterpoint, let me offer you the optimist's perspective:

Focusing on the US is a mistake.  Focusing on westernized first world nations is a mistake. 

There are approximately 7 billion people (and growing) on the planet right now.  Approximately 1 billion of them live a "modern" lifestyle with power and water and television and a McDonalds on every corner.  The other 6 billion are desperate to raise their standard of living to what you and I enjoy.  They crave cell phones and washing machines and SUVs and baby powder and bank accounts.  In the coming century, a good portion of them will undergo the same explosive increase in standard of living that Europe and the US once saw as we went through the same transition.

The demand from those countries will be met by global corporations, most of which are based in the US.  Those corporations will profit as they stop trying to compete for market share in the US, and add an entire US population worth of new customers every year in China and India and Indonesia.  US stockholders will profit.  US workers, maybe not so much.

Protectionist trade policies could still sink us, of course.  If Trump manages to cut off US companies from global markets, we'll all miss out on this coming century of prosperity.  But if we can let free trade run its course, I think we'll be fine.

FWIW, I'm not a pessimist about the future. I would agree with everthing Sol says above. I just think we're going to get returns like we've gotten in the past... and those returns (like those in the past) will show lots of variability.

BTW, I made this point in another thread so sorry for the repetition, but the Rate of Return of Everything paper is really worth reading. It's basically 150 years of financial history across 16 countries. Lots of interesting info, much of it actionable:

https://www.frbsf.org/economic-research/files/wp2017-25.pdf

tyort1

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Re: Will the stock market go up at 7% forever?
« Reply #9 on: February 05, 2018, 05:20:32 PM »
It's hilarious, every time someone comes in and predicts the future will be different from the past, they ALWAYS predict it'll be worse. 
« Last Edit: February 05, 2018, 05:23:39 PM by tyort1 »

GuitarStv

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Re: Will the stock market go up at 7% forever?
« Reply #10 on: February 05, 2018, 05:21:46 PM »
No.  Eventually the heat death of the universe will catch up to us all.

PDXTabs

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« Last Edit: February 05, 2018, 06:57:25 PM by PDXTabs »

SeattleCPA

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Re: Will the stock market go up at 7% forever?
« Reply #12 on: February 06, 2018, 03:00:36 PM »
It's hilarious, every time someone comes in and predicts the future will be different from the past, they ALWAYS predict it'll be worse.

Tyort1, I don't know if you're making that observation about my comment... but I think what I'm trying to point out is, people who look only at the return miss a hugely important part of the picture... and that it's way better to consider both the expected return (whatever that is) and then standard deviation (or any other better measure of the risk).

I am pretty sure most investors have no quantitative sense of the risk in their portfolios.

tyort1

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Re: Will the stock market go up at 7% forever?
« Reply #13 on: February 06, 2018, 03:22:32 PM »
It's hilarious, every time someone comes in and predicts the future will be different from the past, they ALWAYS predict it'll be worse.

Tyort1, I don't know if you're making that observation about my comment... but I think what I'm trying to point out is, people who look only at the return miss a hugely important part of the picture... and that it's way better to consider both the expected return (whatever that is) and then standard deviation (or any other better measure of the risk).

I am pretty sure most investors have no quantitative sense of the risk in their portfolios.

My point was more at the OP.  It's just humorous to me that people come and post that:

1.  The future will be different than the past
2.  It will be worse

Most likely the future will be similar to the past.  So right off the bat we're in speculative land.  And the funny thing is NO one says "well, we're in for 10% returns from here on out, the future is going to be better than the past".  NO, they ALL say "Well we're in for 4% returns, the future is going to be worse than the past."

I just find it funny how consistent the people on this forum posit such pessimistic views. 

And it's not even just here.  If you look back, almost the entire history of mankind is filled with pessimist and doomsayers.  Almost since the beginning of recorded history, the 'wise prophets' have been predicting calamity as well a general decline in society.  After being so spectacularly wrong for so long, one would think that the pessimists would realize the error of their ways and cheer up.  But nope, it's doom and gloom and downward standard deviations and "it can't keep going like this" and the world is going to hell in a handbasket and even if it weren't it's all an illusion and we'll be blindly driving over the edge of the cliff soon!

Bicycle_B

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Re: Will the stock market go up at 7% forever?
« Reply #14 on: February 06, 2018, 03:28:48 PM »
@ePalmtrees, really interesting question.  Some form of it gets discussed periodically, you'll see lots of threads discussing some variant of this. 

In support of the long term idea of 5% or more long term gains after inflation (aka 7% forever, supposing 2% inflation underlying your original remark), here is the most comprehensive article I've ever seen about stock returns over history, including 16 countries and more than 100 years of returns.  It's "The Rate of Return on Everything," by several economists/researchers at the Federal Reserve Bank of San Francisco.  One of its main conclusions is that "risky" assets such as stocks have been surprisingly stable over time in delivering real returns (returns after inflation) of 5-6% per year:

https://www.frbsf.org/economic-research/files/wp2017-25.pdf

Fwiw, one of their other findings was that investments in housing produced about the same, while being about twice as stable. 
« Last Edit: February 06, 2018, 03:38:38 PM by Bicycle_B »

Acastus

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Re: Will the stock market go up at 7% forever?
« Reply #15 on: February 06, 2018, 03:39:37 PM »
The S&P 500 annualized return, aka geometric mean return, for the last 30 years is 11%. It varies a lot from year to year, with returns over the last 10 years ranging from +32 to -37%. You need to decide what is long term for you. We have recently had a lot of good years, so conservative projections should be lower than 11%. That will account for a recession some time in the next 10 years. You also need to decide whether your portfolio needs some bonds. They will bring down the average return, but they help reduce the pain in bad years, so you don't panic and sell at the worst moment.

SeattleCPA

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Re: Will the stock market go up at 7% forever?
« Reply #16 on: February 06, 2018, 04:38:18 PM »
@ePalmtrees, really interesting question.  Some form of it gets discussed periodically, you'll see lots of threads discussing some variant of this. 

In support of the long term idea of 5% or more long term gains after inflation (aka 7% forever, supposing 2% inflation underlying your original remark), here is the most comprehensive article I've ever seen about stock returns over history, including 16 countries and more than 100 years of returns.  It's "The Rate of Return on Everything," by several economists/researchers at the Federal Reserve Bank of San Francisco.  One of its main conclusions is that "risky" assets such as stocks have been surprisingly stable over time in delivering real returns (returns after inflation) of 5-6% per year:

https://www.frbsf.org/economic-research/files/wp2017-25.pdf

Fwiw, one of their other findings was that investments in housing produced about the same, while being about twice as stable.

There's a frothy and fun discussion of the "Rate of Return of Everything" working paper in the real estate subforum right now:

https://forum.mrmoneymustache.com/real-estate-and-landlording/rate-of-return-on-everything-a-150-year-history/

Some of us are very worked up about the low correlation. :-)

SwordGuy

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Re: Will the stock market go up at 7% forever?
« Reply #17 on: February 06, 2018, 04:52:22 PM »
JL Collins got asked the same question just yesterday.  Here's the gist of his answer at http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/.  He does a pretty good job of answering it.

"...
We might also see two world wars that kill 10s of millions of people, maybe with a worldwide great depression between them. After those, we might invent a whole new class of weapons that can destroy civilization in a matter of hours. We might engage in a decades long “cold war” with those weapons on a hair trigger. The US might get bogged down in multiple expensive regional wars that drag on for decades. We might go off the Gold Standard. We might see an ugly combination of skyrocketing inflation along with a stagnate economy that we’d have to create a brand new term for: Stagflation. The market might plunge almost 25% in a single day. Maybe we’ll call that “Black Monday.” We might see bubbles in the tech sector and in housing grow and burst within a decade of each other, each time causing major market collapses.

Oh, wait. That was the last 100 years. 😉

Sadly, we can expect the next 100 years to be tumultuous, although we can hope not as terrible as the last 100. The point is, the market doesn’t need a golden era to “always go up”. My approach is a bet on civilization continuing and the US continuing to be a major player on the world’s economic stage.

And, while bad things will certainly happen, there is also the possibly that wonderful new leaps in technology are pending, the price and use of fossil fuels will plunge as renewables replace them and that a stable population will lead to growth thru greater prosperity for the currently impoverished billions, a trend already underway.

That’s my take, for what it is worth.


..."

grenzbegriff

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Re: Will the stock market go up at 7% forever?
« Reply #18 on: February 06, 2018, 05:08:26 PM »
Yes.

Worst case global warming could seriously hamper world GDP over the next 30+ years.
Climate change is just one thing.  There's also the fact that habitat for all forms of life is being depleted faster than ever (e.g. through pollution and deforestation), and that economic growth depends on this depletion. 

The counterpoint is that technology will improve fast enough either to:
1) keep humans alive as everything else dies off
2) restore the habitat. 

So far, our tech advancements have mostly been #1.  And mostly the technological improvements have accelerated the destruction of habitat, while not removing our dependence on it.

For an analogy, imagine a colony of bacteria on a food source.  They will grow and grow and grow until eventually the food source runs out, and then a lot of them will die.  It's possible humanity has another 20 or 50 or 100 years of growth in consumption before "top is in".  But of course, we don't know what the number is. 
« Last Edit: February 06, 2018, 05:23:24 PM by grenzbegriff »

Bicycle_B

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Re: Will the stock market go up at 7% forever?
« Reply #19 on: February 06, 2018, 05:58:47 PM »
Yes.

Worst case global warming could seriously hamper world GDP over the next 30+ years.
Climate change is just one thing.  There's also the fact that habitat for all forms of life is being depleted faster than ever (e.g. through pollution and deforestation), and that economic growth depends on this depletion. 

(snip)

It's a fact that habitat in general for beings not cultivated by humans is being depleted, and that some of this depletion has been fueling economic growth.  Whether future economic growth depends on such depletion is a conjecture. 

It may be possible that our global human economy, which uses easy-to-plunder resources quickly but has a proven ability to become more resource-efficient when resources get harder to obtain, will one day grow at today's pace or greater without depleting the habitat of beings not cultivated by humans.  It may even grow while renewing the overall health of the biosphere, replenishing "wild" habitat, integrating wild-ish habitat into areas that include humans, etc.  All of these things are possible.  Therefore it is unknown whether habitat scarcity will impede future stock markets enough to prevent long term 7% nominal (5% real) returns.
« Last Edit: February 06, 2018, 06:00:33 PM by Bicycle_B »

grenzbegriff

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Re: Will the stock market go up at 7% forever?
« Reply #20 on: February 06, 2018, 07:11:33 PM »
Quote
Whether future economic growth depends on such depletion is a conjecture. 
The conjecture being that we will or will not develop some new technology and cultural will that enables us to grow our economy without depleting habitat, which so far we haven't done.  I would bet that such a technology and cultural will, if discovered, would take a lot of years to make economically viable and scale up to replace how we currently do things.  But you may conjecture it could happen immediately.

Until that time, if we stopped doing the things that are depleting habitat today, i.e. stopped doing things that pollute with chemicals toxic to life, and stopped extracting resources at rates above their natural replenishment, then the global economy would slow way down -- most of today's production would halt within a year or two.

So yes, it's conjecture, in the same way that it's conjecture that we won't discover a free energy machine tomorrow and fix all of humanity's problems instantly.

dustinst22

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Re: Will the stock market go up at 7% forever?
« Reply #21 on: February 06, 2018, 07:26:56 PM »
When you're indexing, you're not just betting on population growth to fuel business growth, you're also betting on the fact that companies will become more productive due to increases in technology, which as we've seen is exponentially more important than population growth.  I wouldn't be surprised to see future returns outpace past returns.  If anything productivity is going to continue to grow exponentially as our technology becomes more robust.  Also, workers are working less and less where companies are located, so US population growth is really a moot point.
« Last Edit: February 06, 2018, 07:30:00 PM by dustinst22 »

Bicycle_B

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Re: Will the stock market go up at 7% forever?
« Reply #22 on: February 06, 2018, 08:12:28 PM »
Quote
Whether future economic growth depends on such depletion is a conjecture. 
The conjecture being that we will or will not develop some new technology and cultural will that enables us to grow our economy without depleting habitat, which so far we haven't done.  We haven't done it in aggregate, globally.  But we've done lots of pieces of it.  Case in point: Japan once used up much of its forests, then changed its policies.  That was generations ago.  It has substantially reforested, going through large economic advances and major wars while steadily retaining a large of % of forest land.  Globally we have plenty of renewable energy tech and a deep growing mix of agriculture skills.  Cultural will globally, I stipulate is a huge issue.

I would bet that such a technology and cultural will, if discovered, would take a lot of years to make economically viable and scale up to replace how we currently do things.  But you may conjecture it could happen immediately.  I conjecture it will not happen any time soon, except that some of the pieces that lead to it are already happening (bicycle-promoting websites, carbon credit markets, solar technology spreading, global climate agreements having influence despite the biggest country spitting on them, people hatching schemes to rewild continental prairies, multiple nations creating ocean wildlife preserves, car companies competing to develop electric vehicles).  What is unknown is whether those pieces will predominate, and if so, whether it will happen in the medium term or the long term.  I assume that in the short term, we will continue to grow economically while pushing the biosphere into continued tragic waves of species extinction.  Likewise, I assume significant and expensive climate change.  Neither of these last assumptions necessarily prevents a rising stock market.  They make it a maybe.

Until that time, if we stopped doing the things that are depleting habitat today, i.e. stopped doing things that pollute with chemicals toxic to life, and stopped extracting resources at rates above their natural replenishment, then the global economy would slow way down -- most of today's production would halt within a year or two.  So of course we won't just stop all of today's externality-ignoring production in one year and suddenly collapse the economy.  We'll move more gradually to a system that captures the externalities and accounts for them, or in some other way recycles resources efficiently.  Neither a sudden nor a gradual shift would necessarily prevent a long term rise of global stock markets anyway - a temporary drop is just temporary.   Only a failure to ever ever improve would guarantee that the stock market would necessarily fail to achieve a particular growth rate in the long term. 

So yes, it's conjecture, in the same way that it's conjecture that we won't discover a free energy machine tomorrow and fix all of humanity's problems instantly. I didn't conjecture all of humanity's problems would be solved instantly.  I conjectured they may be solved gradually, to the limited extent required for stock markets to rise.  The original statement in this quote series claims that habitat for all forms of life is is being destroyed faster than ever, and that such destruction will be required for future economic growth.  The claim that habitat destruction will always be needed to support future economic growth is not a fact; that too is a conjecture.  Neither of us can be certain what future economic growth will require.
« Last Edit: February 06, 2018, 08:35:20 PM by Bicycle_B »

dustinst22

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Re: Will the stock market go up at 7% forever?
« Reply #23 on: February 06, 2018, 09:14:58 PM »
Nine uses of the word conjecture in one post, that has to be some kind of record.

tyort1

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Re: Will the stock market go up at 7% forever?
« Reply #24 on: February 06, 2018, 09:53:09 PM »
Nine uses of the word conjecture in one post, that has to be some kind of record.

That's just conjecture!  :)

alanB

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Re: Will the stock market go up at 7% forever?
« Reply #25 on: February 07, 2018, 09:03:08 AM »
Unless you have not been surprised by anything that has happened during your life, I would hesitate to try to predict the future.  But you asked for it, here is my conjecture ;P

I personally think that the market will saturate and level off eventually, but we are not even close to that point.  There are enough non-renewable resources to consume, maturing markets to develop, and inefficiencies to correct to keep the party going, probably through the lifetime of anyone alive right now. 

Obviously we will need to switch to a non-depleting growth model at some point, I do not think that is conjecture if we project far enough out.  Depending on when that happens there may be some significant economic pain for people born in a certain generation.  I am guessing that climate change will have disastrous short term consequences that will be more than offset by the long term benefits from the technology that will need to be developed to solve it.  It is human nature to expect that bad events will have bad consequences, but that has clearly not always been true historically.

However, what would a truly growth-less market look like?  At a certain point the total wealth and abundance should be able to support everyone on the planet, at which point you might not be so worried about stock returns... either we will be in a post-scarcity utopia or the poor people will all be serfs.

Whenever the future looks bleak I like to re-read this article: https://www.nytimes.com/2016/09/22/opinion/the-best-news-you-dont-know.html

One Noisy Cat

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Re: Will the stock market go up at 7% forever?
« Reply #26 on: February 07, 2018, 09:13:43 AM »
I think it was around 1897 that the US Patent office said "there's nothing left to invent."  Look at those same companies and figure out how many of them or the product/tech they sell even existed 20-30 years ago.  Americans are quite creative at finding new ways to turn a profit.

Not really. What happened was in 1843 Henry Ellsworth, commissioner of the Patent Office, used rhetorical flourish, told Congress that advances taxed our imagination and seemed to indicate it must soon end. But he then outlined areas where he expected advancements to continue, and being a government bureaucrat, asked for more money to effectively police new patents.

https://en.m.wikipedia.org/wiki/Henry_Leavitt_Ellsworth

tyort1

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Re: Will the stock market go up at 7% forever?
« Reply #27 on: February 07, 2018, 09:23:34 AM »
Unless you have not been surprised by anything that has happened during your life, I would hesitate to try to predict the future.  But you asked for it, here is my conjecture ;P

I personally think that the market will saturate and level off eventually, but we are not even close to that point.  There are enough non-renewable resources to consume, maturing markets to develop, and inefficiencies to correct to keep the party going, probably through the lifetime of anyone alive right now. 

Obviously we will need to switch to a non-depleting growth model at some point, I do not think that is conjecture if we project far enough out.  Depending on when that happens there may be some significant economic pain for people born in a certain generation.  I am guessing that climate change will have disastrous short term consequences that will be more than offset by the long term benefits from the technology that will need to be developed to solve it.  It is human nature to expect that bad events will have bad consequences, but that has clearly not always been true historically.

However, what would a truly growth-less market look like?  At a certain point the total wealth and abundance should be able to support everyone on the planet, at which point you might not be so worried about stock returns... either we will be in a post-scarcity utopia or the poor people will all be serfs.

Whenever the future looks bleak I like to re-read this article: https://www.nytimes.com/2016/09/22/opinion/the-best-news-you-dont-know.html

And the trend continues to improve, along several vectors.  Here's an update along similar lines from Vox (including graphs): 

https://www.vox.com/the-big-idea/2018/1/3/16843404/good-news-2017-global-health-development-war

acroy

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Re: Will the stock market go up at 7% forever?
« Reply #28 on: February 07, 2018, 09:53:37 AM »
It'll be 7% until the Mars market opens up, then it'll really go on a tear.

matchewed

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Re: Will the stock market go up at 7% forever?
« Reply #29 on: February 07, 2018, 10:03:56 AM »
No.  Eventually the heat death of the universe will catch up to us all.

Damn you laws of thermodynamics for ruining the market rules of thumbs.

toganet

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Re: Will the stock market go up at 7% forever?
« Reply #30 on: February 07, 2018, 10:08:03 AM »
Intelligence tests often ask a question similar to this:

Quote
A lily pad grows so that each day it doubles its size (area). On the 20th day of its life, it completely covers the pond. On what day of its life was the pond half covered?

I trust everyone here knows the answer is 19.  Obviously the stock market doesn't double every day, but at 7% we should expect it to double every 10.2 or so years.  So some multiple of 10.2 years in the future, the stock market will be at "maximum size" -- and only 10.2 years prior to that we would expect it to be at only HALF that size!

I'm skeptical of this construction, as I don't think the stock market is deterministic in this way.  I would expect there to be some asymptotic approach to a sustainable state (non-growth, low-amplitude boom/bust, etc) OR for there to be a "reset event" that puts our measurement close to zero.

I think the real issue is going to be around climate change / energy production and the related transitions.  There is a possible future that swings up from here -- but there is one that swings down hard, as well.

I choose to be an optimist, though, so I am "long" on the future overall, and my AA reflects it.  (So does my debt).

BUT, because I am just paranoid enough that I can't sleep without it, I have a "plan B' that is based around Real Estate, Relationships, and Resourcefulness.  I hope I never need to use it.

tyort1

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Re: Will the stock market go up at 7% forever?
« Reply #31 on: February 07, 2018, 10:17:51 AM »
Think how much stocks have increased JUST from building up a modern lifestyle for first world countries.  Now, places like India, China hell even lots of parts of Russia, etc are all on the cusp of moving into first world lifestyles or are already transitioning to it.  Thats a TON of growth and money for companies that are going to provide that lifestyle.  So huge growth may or may not happen in America, but it will definitely happen in the world.  I'm not going to worry about growth of my portfolio until everyone in these other places has cell phones, McMansions and a soy latte addiction....

Travis

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Re: Will the stock market go up at 7% forever?
« Reply #32 on: February 07, 2018, 10:23:02 AM »
I think it was around 1897 that the US Patent office said "there's nothing left to invent."  Look at those same companies and figure out how many of them or the product/tech they sell even existed 20-30 years ago.  Americans are quite creative at finding new ways to turn a profit.

Not really. What happened was in 1843 Henry Ellsworth, commissioner of the Patent Office, used rhetorical flourish, told Congress that advances taxed our imagination and seemed to indicate it must soon end. But he then outlined areas where he expected advancements to continue, and being a government bureaucrat, asked for more money to effectively police new patents.

https://en.m.wikipedia.org/wiki/Henry_Leavitt_Ellsworth

I went back and looked it up.  It was also attributed to Charles Duell and appeared in a newspaper joke from 1899. Either way it's apocryphal.  Too bad, it's catchy.

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Re: Will the stock market go up at 7% forever?
« Reply #33 on: February 07, 2018, 10:33:35 AM »
I see three probable ends to the present 7% expansion:

1) the economic impacts of environmental depletion hit business so hard that there's a depression that we just don't pull out of, spiraling down to total environmental and economic exhaustion,

2) there's a nuclear war between major powers and the whole story abruptly ends;

3) technology comes to the rescue, we figure out how not to totally ruin our nest, and we have an even larger surplus productivity than we have right now. Then 7% may look really piddly.

I have a hard time imagining scenario 1 not gliding into scenario 2. The kind of dislocations caused by a global depression are exactly the kinds to fuel conflict. (I rate the likelihood of ending up at scenario 2 at about 75%, but who am I? Just some random guy on a forum.)

But in scenario 2, all bets are off and it doesn't matter anyway, so I might as well bet on scenario 3. I guess this is a variant of Pascal's wager :-)  Even in scenario 1, I think the rentier class in America will manage to look after itself clear up till the end. (Maybe not 7%, but certainly 5%) So what the heck?

tyort1

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Re: Will the stock market go up at 7% forever?
« Reply #34 on: February 07, 2018, 10:45:26 AM »
And really, threads like this are just another way to question the 4% rule.  The 4% rule holds up as long as the future is similar to the past. 

If you start positing that the future is going to be different, then the 4% rule doesn't hold up. 

Many people that do this, say it's because they want to be prepared, "just in case".  But the real underlying emotion is fear.  Fear expressed as uncertainty.

Now, I'm all for having a backup plan (I know I have one), but the truth is that, based on all historical evidence, the 4% rule is very, very robust.  If you're going to start undercutting the assumptions that underly the 4% rule, of course it'll fall apart.  And then all that additional worry and fear will seem justified!

This illustrates very clearly what we know about how people's minds work.  People "start" with the conclusion that feels correct, and then they pull in logic/reason to justify that initial emotional conclusion.

Case in point.  The 4% rule is very robust.  But for some people that just doesn't "feel right", so they start to undercut or change the underlying foundations of the 4% rule until the 4% rule doesn't work anymore.  Then they say - "See, there's danger here, better to be safe than sorry!". 

The funny thing is that everyone thinks they are being very rational and clear headed.  But in fact the entire logical construct is put in place merely to serve the pre-existing emotional need. 

And EVERYONE does it.  Even people that are aware of the dynamic.  Its almost impossible to avoid doing it.  Still it's interesting to see it play out....
« Last Edit: February 07, 2018, 10:49:04 AM by tyort1 »

koshtra

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Re: Will the stock market go up at 7% forever?
« Reply #35 on: February 07, 2018, 11:22:11 AM »
Another way to conceptualize this is: how powerful is the rentier class, and what are the chances that things will get SO bad that the wealthy won't be able to look after themselves and make a profit?

They've won every major battle since the 1980s. Labor and unions are in total disarray. The top income tax bracket is a piddly fifty percent. They're organized and funded out the ears (see Koch, Brothers.) When you throw in your economic lot with those guys, you're in the pack with the big dogs. They represent the very center of global power.

I don't like them, but I don't see their winning streak ending any time soon.

PDXTabs

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Re: Will the stock market go up at 7% forever?
« Reply #36 on: February 07, 2018, 12:30:53 PM »
I choose to be an optimist, though, so I am "long" on the future overall, and my AA reflects it.  (So does my debt).

My nature is to hope for the best but plan for the worst. But I still max out my 401(k) in equities every month. I mean, what better plan is there? So if things go well I'm set. If things go poorly I still planned pretty well, right? Other than buying farmland and learning to farm, what else could I do other than buy a slice of the world stock market?

Bicycle_B

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Re: Will the stock market go up at 7% forever?
« Reply #37 on: February 07, 2018, 11:31:59 PM »
Nine uses of the word conjecture in one post, that has to be some kind of record.

Next year I will use it 7% more.

:)

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Re: Will the stock market go up at 7% forever?
« Reply #38 on: February 08, 2018, 10:34:40 AM »
Nine uses of the word conjecture in one post, that has to be some kind of record.

Next year I will use it 7% more.

:)

:-)

NoraLenderbee

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Re: Will the stock market go up at 7% forever?
« Reply #39 on: February 08, 2018, 04:33:27 PM »
BAsed on recent events, it will go down at 4% forever.

ChpBstrd

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Re: Will the stock market go up at 7% forever?
« Reply #40 on: February 10, 2018, 08:53:56 PM »
It's worth asking if corporate ownership will continue to occur mostly through U.S.-style stock markets. In China and Russia (and maybe soon, Turkey and Poland), authoritarian governments run by oligarchs hold controlling stakes in most industries and periodically extract wealth at the expense of less powerful shareholders, who have no better options than to take the abuse and low yields. Consider the plight of Chinese savers who must attempt to find ways to get their money out of the country.

The billions of people attempting to achieve middle-class lifestyles may very well end up buying from such companies, rather than Western companies traded on exchanges. Witness China's economic re-colonization of Africa, or the way Western Europe is still dependent on Gazprom for natural gas. The computer or cell phone you are using contains components produced by such an economic model, rather than the Western capitalistic ideal. The gas in your car does too.

It's fair to wonder if an increasing concentration of wealth inevitably produces billionaire oligarchs, who inevitably buy governments, and inevitably use governments' monopolies on violence and dispute arbitration to obtain control of companies, and then inevitably suck wealth out of them like a parasite.

By the time we're old, we may have witnessed the U.S. and Western Europe converge on this inevitable endgame. If that's the case, the sort of mostly-transparent, highly-regulated stock market that once allowed workers to amass fortunes will be a thing of the past, and there will be some new way to struggle for a position where other people work for you. 

ChpBstrd

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Re: Will the stock market go up at 7% forever?
« Reply #41 on: February 10, 2018, 09:01:25 PM »
Here's a good article on the subject. Most economies had lower stock market performance than the U.S. In some, politically powerful people seized investors' assets.

http://www.sr-sv.com/lessons-from-long-term-global-equity-performance/

WhiteTrashCash

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Re: Will the stock market go up at 7% forever?
« Reply #42 on: February 10, 2018, 10:25:10 PM »
I don't even bother with international markets right now, because their performance is based on the US markets anyway. When the US does well, the foreign countries do well. When the US does poorly, yadda yadda yadda. Maybe someday China will actually match the US and things will change, but first they need to learn how to stop poisoning their children's milk and toys.

dustinst22

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Re: Will the stock market go up at 7% forever?
« Reply #43 on: February 14, 2018, 12:44:09 PM »
I don't even bother with international markets right now, because their performance is based on the US markets anyway. When the US does well, the foreign countries do well. When the US does poorly, yadda yadda yadda. Maybe someday China will actually match the US and things will change, but first they need to learn how to stop poisoning their children's milk and toys.

You think it's wise to not invest in:

7 of the 10 largest automobile companies
7 of the 10 largest diversified telecommunications companies
8 of the 10 largest metals and mining companies
6 of the 10 largest electronic equipment and instruments companies
5 of the 10 largest household durables companies


As "Dodge" would say:

The dozen large companies in NY state are closely linked to both the international economy, and the US economy.  Why shouldn't I just buy them? GE often follows movements in the S&P 500, why not just own one stock?

Indexing makes sense globally as much as it makes sense domestically. 
« Last Edit: February 14, 2018, 12:48:04 PM by dustinst22 »