Buffett: Don't expect returns over 7% over next century

[W2R]

Where I think they make good points is that people are far more comfortable with investing in the stock market than they were 100 years ago and even 20 or 30 years. Stock market investing = gambling to lot of people even 20 or 30 years ago. That isn't true any more

It's true for some of us!!! I would really rather not be in equities at all, but have also lived through the rampant inflation we had a quarter century back. Gambling is enforced when the value of your money is constantly shrinking. If inflation did not exist, I would have plenty of money for life and I would have no need to invest it in anything.

October 2002-October 2007.......we're not going to see that kind of 5-year growth again in my lifetime.............

Tell me it isn't so! I am hoping we'll get right back to that as soon as we are done with this little dip in the road.

 

[FinanceDude]

There are a lot of ways to interpret that ... I hope you are ok health wise.

I don't see the market indexes going up 85% or so in a given 5 year period for a LONG time. We had a huge market bubble, follwed by a national tragedy, along with high interest rates.........

 

[FinanceDude]

I'm waiting for the study that compares dividend yields to tax & accounting law. I bet when dividends are heavily taxed that the dividend yield drops, and when dividends are lightly taxed then the yield goes up.

Well,Bill Gates waited until the dividend rate was the lowest in history, then paid a 10% dividend.......I think he saved a couple hundred million in taxes by waiting............

 

[mh]

My post was about the trap of extrapolating the past into the future. Eighteen fat years is rarely followed by another 18 fat years.

Ha

i would tend to (naively) agree w/ this statement. but do you have any
reason to believe this other than it 'seems logical' . I find my self thinking
such things sometimes and wonder if its just the same thing as thinking
the next coin toss is more likely to come up heads if it came up tails
18 times before..

 

[free4now]

Eighteen fat years is rarely followed by another 18 fat years.

The evidence is that historically "reversion to the mean" has always happenned. If you look at logarithmic graphs of stock indexes over many decades, they always approximate straight lines. You never see cases where the line changes slope or doglegs. Over the long term (multiple decades).

Over the short term when you look year by year it's nowhere near a straight line, so I wouldn't say "Three fat years is rarely followed by another three fat years".

 

[haha]

The evidence is that historically "reversion to the mean" has always happenned. If you look at logarithmic graphs of stock indexes over many decades, they always approximate straight lines. You never see cases where the line changes slope or doglegs. Over the long term (multiple decades).

Over the short term when you look year by year it's nowhere near a straight line, so I wouldn't say "Three fat years is rarely followed by another three fat years".

We had a long high quality thread on this topic a few years ago. I think it is called "Triumph of the Optimists". The title is from an axcellent book by Elroy Dimson, et al, and they prove beyond my tendency to doubt that over the long term there is definite reversion to the mean in equity returns.

Ha

 

[clifp]

We had a long high quality thread on this topic a few years ago. I think it is called "Triumph of the Optimists". The title is from an axcellent book by Elroy Dimson, et al, and they prove beyond my tendency to doubt that over the long term there is definite reversion to the mean in equity returns.

Ha

So what is the mean equity return? And over what period of time.

 

[Nords]

So what is the mean equity return? And over what period of time.

5% over inflation, and these guys tend to look at a century's worth of data at a time. So perhaps it could be over the period of several decades.

http://www.early-retirement.org/forums/showpost.php?p=360111&postcount=8

 

[al_bundy]

i would tend to (naively) agree w/ this statement. but do you have any
reason to believe this other than it 'seems logical' . I find my self thinking
such things sometimes and wonder if its just the same thing as thinking
the next coin toss is more likely to come up heads if it came up tails
18 times before..

go to dowjones.com Home and look at the Dow charts going back to the 1800's. it's the first trend that sticks out

 

[free4now]

I couldn't find any long graphs on that site, but here I found graphs of a century's worth of data:

Historical Financial Charts: Are You Invested In These Markets?

In the red and green graph they break the dow jones results up into cycles of 18 years of growth and then 18ish years of stagnation.

 

[youbet]

My post was about the trap of extrapolating the past into the future. Eighteen fat years is rarely followed by another 18 fat years.

Right....... But, recently we did see 9 fat years followed by 9 fat years!

 

[Patrick]

but I don't expect to live another century either. World population peaks sometime around midcentury so that can be expected to lower growth. Would you rather live in the future or in the past though? Growth is good, but so are higher living standards. By then we may have gone interplanetary if not interstellar. On the other hand, some things we take for granted now will probably seem like real luxuries in the future.

I saw a prediction recently that if you can live another 50 years, you'll be able to live forever due to advances in medical technology. Where's that stemcell research when we need it?

 

[W2R]

I saw a prediction recently that if you can live another 50 years, you'll be able to live forever due to advances in medical technology.

I saw a prediction in 1965 that by the year 2000, the average middle class breadwinner would be flying his own personal airplane to work every day. Automobiles would be a thing of the past. We would all have hangars in the back yard and common runways for the neighborhood.

Not to say that there aren't neighborhoods like this -- I know there are, but I think most of us still do commute by car.

Oh, drat! This is another off topic post. The older I get, the more I do it. Sorry.

 

[Patrick]

Sorry, I don't know what to do with your post. It is so laced with cynicism that I don't quite understand what point you are trying to make.

I was just ranting. I am in a bad mood after spending the weekend listening to a couple of boomers whining about their situation. First, my FIL is hitting us for big time money to take care of a few "mistakes". Then, my mom was complaining that inflation was eating through her social security check and that life was becoming tough (meaning she might need "help"). Coming from the woman who just bought new sofas to replace a perfectly good 5 year old sectional, but the color did not suit anymore, you see... When I told her that at least she was lucky to get SS, and that I probably will not be so lucky, her answer was just: So what? I am just sick and tired of it right now.

"Just say no." - Nancy Reagan

 

[Patrick]

The evidence is that historically "reversion to the mean" has always happenned. If you look at logarithmic graphs of stock indexes over many decades, they always approximate straight lines. You never see cases where the line changes slope or doglegs. Over the long term (multiple decades).

Over the short term when you look year by year it's nowhere near a straight line, so I wouldn't say "Three fat years is rarely followed by another three fat years".

Given enough time, doesn't it always have to "revert to the mean," by definition? If not, there would be no mean. And I don't mean to sound mean by saying that.

 

[Patrick]

Oh, drat! This is another off topic post. The older I get, the more I do it. Sorry.

I predict that by 2065 there will be a cure for that.

 

[W2R]

I predict that by 2065 there will be a cure for that.

There will be in my case! Unless I live to 117, that is.

 

[HFWR]

And I'll be a relative youngster of 111...

 

[cute fuzzy bunny]

Not to say that there aren't neighborhoods like this -- I know there are

Yep, next town over from me is basically a small airstrip with a bunch of houses surrounding it, all with hangers for garages and wide taxiways between the homes and the airstrip. Pretty funny to drive through. Trippy wide streets so two planes can taxi past each other at the same time.

 

[Dawg52]

After the last few days performance, I'm not so sure Buffett didn't mean 'Don't expect returns over -7% over the next century'. This crap is getting old.

 

[haha]

After the last few days performance, I'm not so sure Buffett didn't mean 'Don't expect returns over -7% over the next century'. This crap is getting old.

You can say that again. I'm struck by how many stocks have declined to 35-50 of their recent highs. This is pretty extreme. As far as I can tell these stocks are not hopeless or anywhere near so. The averages are masking a lot of very profound drops in smaller or more obscure stocks- especially anything financial.

In the past it has usually paid to be a buyer in these circumstances, but it seems easy to lose another 10% in a day like today, so one has to have to have conviction.

Wow. I just looked at some of today's results. Incredible! Fannie down 10%, Freddie down 7%. NLY down 18%. And NLY has zero credit risk, all agency paper. What they do have, apparently in common with the whole wide world, is funding risk. A good chance to get stinking rich, or get clobbered in recaps.

I sold a well-appreciated LT natural gas stock today to give me some spare cash beyond what I want to keep for emergencies. There will be some very impressive rallies quite soon, regardless of the ulitimate outcome of this stuff.

Ha

 

[Patrick]

Yep, next town over from me is basically a small airstrip with a bunch of houses surrounding it, all with hangers for garages and wide taxiways between the homes and the airstrip. Pretty funny to drive through. Trippy wide streets so two planes can taxi past each other at the same time.

Yeah. I saw on the news a couple days ago that two vintage aircraft crashed into each at one of these airparks, killing one of the pilots. One plane was landing while the other was taxiing into position for takeoff.

 

[cute fuzzy bunny]

Hmm, so people do the same dumb crap in airplanes that they do in cars...

 

[Patrick]

Hmm, so people do the same dumb crap in airplanes that they do in cars...

Yeah, it justs costs a lot more money to do it.

 

[HFWR]

Here's a little subdivision for aviation enthusiasts...

Jumbolair Aviation Estates