William Bernstein: the paradox of wealth

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Re: William Bernstein: the paradox of wealth

Postby Valuethinker » Thu Oct 10, 2013 7:05 am

LazyNihilist wrote:I think there is one instance of a society running out of "raw material". Easter Island. May be it's an anomaly.
It's crazy to think that after the fall of Rome it took Europe close to 1500 years to get back to that level of prosperity.


Depends when we think Rome fell but let's say 341. Probably by 1550 Renaissance Italy was above that level of prosperity. For some types of civilization, eg clean water, Europe didn't get above Rome until the 1800s. However the muslims did so in Granada in Spain in the 1300s.

If you go through Jared Diamond ("Collapse") there are a number of cases of resource exhaustion (he focuses on islands).

Turning to larger examples, for example England in the 1600s had run itself out of wood for making charcoal-- but then made large scale use of naturally occuring coal for heating, and for ships and construction wood imports from the rest of the world (Russia and Scandinavia, and then North America-- the pineboards in my apartment were likely Russian c. 1840s). Medieval England was itself pushing the limits of soil exhaustion.

Ireland at the beginning of the 1830s of course-- the population was larger then than it is now. A population explosion had led to a potato monoculture. When the Blight came, it led to mass starvation, death, and exodus. Something over 1 million Irish died in 10 years, and 1 million emigrated. In a pattern repeated many times in India, Britain dithered, then instituted minimal 'food for work' relief for starving peasants. Cheap foreign food imports were blocked by the Corn Laws. The study of the Indian famines is part of how Amartya Sen got his Nobel Prize. However even had the British government of the 1830s been more proactive, Ireland had exceeded its feasible population that it could sustain.

In fact the whole expansion of the Greeks and then the Romans can be seen as a frantic quest for more food, as their farming practices led to soil exhaustion and erosion in their original heartlands. The British Empire did something similar: Britain became a net food importer probably in the late 1600s (I'd have to check) having had a series of Malthusian Crises. It's been a food importer ever since, even during WW2 when there were mass efforts to grow more food locally, plus sternly enforced calorie rationing. Britain was also a major energy producer throughout the Industrial Revolution (waterpower and then coal) but since the dawn of the age of oil, has normally been a significant oil importer (the North Sea period really only lasted 1979-1999, and for part of that Britain was a net exporter of oil and gas).

A big rationale for the expansion of British power in the Middle East after 1913 was to secure oil supplies, the Royal Navy having, under Churchill, switched from coal to oil generated steam. Hence our efforst to dominate Iran and Iraq in the 20th century, as well as to retain control of the Suez Canal.
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Re: William Bernstein: the paradox of wealth

Postby Rodc » Thu Oct 10, 2013 8:15 am

Browser wrote:
How did they calculate the mean? Just take all the P/E10's for each year (or month), add them up, and dividend by the number of years. It's just the arithmetic average. In 2013, the mean works out to 16.49.

Now if you calculated the mean back in 1995, it would have been about 14.5.

If the process were stationary, as n increases, the sample mean should converge to the population mean. So over time the estimate of the mean would get better and better.

To me, it does not look the mean is converging to any particular value. wbern has a theory that P/E10 is trending up. Maybe in 100 years, mean P/E10 will be over 20.

What seems a little strange to me is that each mean value data point subsumes the prior mean values. It effectively places the highest weight on the oldest mean value and the least weight on the most recent mean value. For example, let's assume there is a series of four data points: 2, 4, 6, 8. The first mean is (2+4)/2 = 3. The second mean is the ((first mean (3) * 2) + 6)/3 = (6+6)/3 = 4. The third mean is the ((second mean (4) * 3) + 8)/ 4 = 20/4 = 5, which subsumes the first mean, and so forth. So it's not terribly surprising that the seqential sample size mean values would wander around in a narrow range that doesn't show any trend, is it?


Think about a coin toss where you get +1 or -1. The mean as you get more and more samples converges to 0. It might wander a little up and down, but the wandering tends towards zero.

This is true for many but not all more complicated distributions such as Gaussian. There are distributions such as Cauchy that do not have this property.

In the math you show you could write instead of ((second mean (4) * 3) + 8)/ 4 = 20/4 = 5, 4+8/4, or more generally (mean of n samples)(n/(n+1)) + sample(n+1)/(n+1). You see this way that as you get more and more samples the new values get less and less weight until their effect on the mean is vanishingly small (as long as the values don't get correspondingly large which is true for many but not all distributions).

Added: I may have misunderstood your question. If the samples come from a nice fixed distribution you would expect the sequential mean to converge toward that mean. If the samples do not come from a fixed mean you might expect the sequential mean to not converge. For example if the samples are taken randomly from a distributions with rising mean you might see a rising sequential mean. Would depend on how fast the distribution is evolving. However if you are trying to find such a thing the sequential mean is the wrong tool; you should fit a line to the data not a constant and look at the slope of the line as wbern did. But as noted above simply fitting a line is not the end of the process.
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Re: William Bernstein: the paradox of wealth

Postby nedsaid » Thu Oct 10, 2013 6:29 pm

This article illustrates why investors are better served by optimism than pessimism. For one thing, you have a bigger chance of being right if you are an optimist. Secondly, it is a matter of perception. An optimist will see opportunities and pounce when he or she sees them where a pessimist will only see problems and obstacles. Thirdly, the trends in economic growth (with the exception of the fall of the Roman Empire) are always up and this is also in favor of the optimists.
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Re: William Bernstein: the paradox of wealth

Postby Browser » Thu Oct 10, 2013 10:31 pm

nedsaid wrote:This article illustrates why investors are better served by optimism than pessimism. For one thing, you have a bigger chance of being right if you are an optimist. Secondly, it is a matter of perception. An optimist will see opportunities and pounce when he or she sees them where a pessimist will only see problems and obstacles. Thirdly, the trends in economic growth (with the exception of the fall of the Roman Empire) are always up and this is also in favor of the optimists.

I thought I read somewhere that pessimists actually have better returns than optimists (I'll have to see if I can find that). They tend to be more vigilant and wary; whereas the optimists are a bit starry-eyed and over-confident (which is a killer for successful investing). Which personality do you want as your banker? Don't stereotype us pessimists! Besides, we're going to outlive you optimists:
people over the age of 65 who overestimated how satisfied they'd be with their life in 5 years had a greater chance of developing a disability or dying in that time. In fact, each point of overestimation on a 1 to 10 scale was linked to a 9.5 percent increase in disability and a 10 percent increase in death.

Here's what's really going on: Negative outlooks are usually just more realistic, making you more likely to be careful and pay attention to your health, the researchers say.

http://living.msn.com/life-inspired/do-pessimists-live-longer
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Re: William Bernstein: the paradox of wealth

Postby nedsaid » Fri Oct 11, 2013 10:48 pm

Browser, I am not arguing against vigilance and a good measure of skepticism. These are good traits for an investor.

Too much of a good thing can be bad. Too much skepticism, and one might never invest. One might be so skeptical as to not believe anything he reads or hears. One might be so skeptical as to throw out the wheat because of the chance there might be a bit of chaff in there. Too much vigilance and one might be constantly in and out of investments at the first whiff of danger.

All I am saying is that an optimistic person is more likely to see opportunity and pounce. I am not saying to throw prudence and caution to the wind.
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Re: William Bernstein: the paradox of wealth

Postby Leesbro63 » Sat Oct 12, 2013 10:49 pm

nedsaid wrote:This article illustrates why investors are better served by optimism than pessimism. For one thing, you have a bigger chance of being right if you are an optimist. Secondly, it is a matter of perception. An optimist will see opportunities and pounce when he or she sees them where a pessimist will only see problems and obstacles. Thirdly, the trends in economic growth (with the exception of the fall of the Roman Empire) are always up and this is also in favor of the optimists.


I suspect pessimists are better savers.
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Re: William Bernstein: the paradox of wealth

Postby umfundi » Sat Oct 12, 2013 11:25 pm

Leesbro63 wrote:
nedsaid wrote:This article illustrates why investors are better served by optimism than pessimism. For one thing, you have a bigger chance of being right if you are an optimist. Secondly, it is a matter of perception. An optimist will see opportunities and pounce when he or she sees them where a pessimist will only see problems and obstacles. Thirdly, the trends in economic growth (with the exception of the fall of the Roman Empire) are always up and this is also in favor of the optimists.


I suspect pessimists are better savers.

"Cheer up", they said, "things could be worse". So I cheered up and yes, things got worse.

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Re: William Bernstein: the paradox of wealth

Postby DaleMaley » Sun Oct 13, 2013 7:15 am

I enjoyed Bernstein's article.

It made me think of Hans Rosling's amazing stats video on world conditions improving over time......

http://www.ted.com/talks/hans_rosling_s ... _seen.html
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Re: William Bernstein: the paradox of wealth

Postby jackholloway » Sun Oct 13, 2013 11:03 am

Browser wrote:
nedsaid wrote:This article illustrates why investors are better served by optimism than pessimism. For one thing, you have a bigger chance of being right if you are an optimist. Secondly, it is a matter of perception. An optimist will see opportunities and pounce when he or she sees them where a pessimist will only see problems and obstacles. Thirdly, the trends in economic growth (with the exception of the fall of the Roman Empire) are always up and this is also in favor of the optimists.

I thought I read somewhere that pessimists actually have better returns than optimists (I'll have to see if I can find that). They tend to be more vigilant and wary; whereas the optimists are a bit starry-eyed and over-confident (which is a killer for successful investing). Which personality do you want as your banker? Don't stereotype us pessimists! Besides, we're going to outlive you optimists:
people over the age of 65 who overestimated how satisfied they'd be with their life in 5 years had a greater chance of developing a disability or dying in that time. In fact, each point of overestimation on a 1 to 10 scale was linked to a 9.5 percent increase in disability and a 10 percent increase in death.

Here's what's really going on: Negative outlooks are usually just more realistic, making you more likely to be careful and pay attention to your health, the researchers say.

http://living.msn.com/life-inspired/do-pessimists-live-longer


But just after that quote, the very same article said that optimist work out more often, have better disease outcomes, and live longer.

So, be both optimistic ans pessimistic.
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Re: William Bernstein: the paradox of wealth

Postby Browser » Sun Oct 13, 2013 1:58 pm

I'm optimistic about being able to become a pessimist. :)
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Re: William Bernstein: the paradox of wealth

Postby Leesbro63 » Sun Oct 13, 2013 4:58 pm

I try to live by the motto: Hope for the best, plan (or at least "be ready") for the worst.
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Re: William Bernstein: the paradox of wealth

Postby BackInTheBlack » Tue Oct 15, 2013 1:30 am

Very interesting article. I thoroughly enjoyed reading "The Birth of Plenty" and "A Splendid Exchange" as well - this article pretty succinctly culls many of the main points from both books. (BTW, thanks for all that you do Dr. Bernstein, I have thoroughly enjoyed your books and papers and visit efficientfrontier.com often).

It stands to reason that, all else being equal, equity returns should be somewhat positively correlated to overall economic risk. While the relationship is pretty obvious following times of rock-bottom valuations (Great Depression, 1970's Stagflation, Great Recession), I think Bernstein does a fantastic job of showing longer-term trends and the factors that are at play. Looking at centuries of data one sees that the cost of capital, especially as represented by sovereign interest rates, is a very good indicator of relative economic strength and health of capital markets, both between contemporary nations, and between different epochs. I wonder if there is finally a breakdown in that relationship, though, now that most of the western world has employed monetary stimuli to keep rates artificially low.

As an aside, even though interest rates are historically low, I think the debt markets are no longer the canary in the coal-mine they once were with regards to economic trouble and equity market gyrations, and this worries me. I am not worried about timing the market, but I am concerned about such fundamental breakdowns in valuation, which could lead to very unpredictable market dynamics and a possible increase in frequency of black swan events (due to distortions in valuation).

On another note, I have always found PE10 intriguing, but lacking (I know, big words from an internet poster lol). Stocks behaved much more like preferred equity and even bonds in the days when liquidity was substantially lower and dividends were categorically higher up until the 1950's, and that has to be somehow reflected in lower valuations. Earnings power was plowed into goosing shareholder income, somewhat at the expense of earnings growth (theoretically) and that was reflected in much lower valuations (this is simply my theory on the matter). That's another paradox: while the American economy more resembled an "emerging market" in those days, the preponderance of equity issues behaved like modern "value" stocks, whereas since the economy has matured there has been an explosion of "growth" issues paying little or no dividends since the 1990's, which remains in vogue to this day.
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Re: William Bernstein: the paradox of wealth

Postby Lauren Vignec » Tue Oct 15, 2013 4:24 pm

grayfox wrote:But I also don't observe any clear trend either up or down in P/E10. The mean has drifted randomly between about 14 and 18.

Hello Grayfox,

I came to believe that stocks were risky to most investors mostly because they do badly at the worst possible times. And arguments about institutional investors and infinite time frames didn't make sense. Institutions don't make decisions. Money managers and investment teams make decisions. Those institutional investors might be even more worried about bad returns at bad times than the average retiree.

If stocks are risky mostly because they do badly at bad times, then perhaps P/E shouldn't have much of an upward trend. So when I think about future stock returns, my theory makes me feel a little bit better.

However, this theory does nothing for me when I try to feel better about future bond returns. And of course, expected stock returns cannot be separated from expected bond returns. Now I don't feel much better at all.
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Re: William Bernstein: the paradox of wealth

Postby grok87 » Tue Oct 15, 2013 11:33 pm

BackInTheBlack wrote:Very interesting article. I thoroughly enjoyed reading "The Birth of Plenty" and "A Splendid Exchange" as well - this article pretty succinctly culls many of the main points from both books. (BTW, thanks for all that you do Dr. Bernstein, I have thoroughly enjoyed your books and papers and visit efficientfrontier.com often).

It stands to reason that, all else being equal, equity returns should be somewhat positively correlated to overall economic risk. While the relationship is pretty obvious following times of rock-bottom valuations (Great Depression, 1970's Stagflation, Great Recession), I think Bernstein does a fantastic job of showing longer-term trends and the factors that are at play. Looking at centuries of data one sees that the cost of capital, especially as represented by sovereign interest rates, is a very good indicator of relative economic strength and health of capital markets, both between contemporary nations, and between different epochs. I wonder if there is finally a breakdown in that relationship, though, now that most of the western world has employed monetary stimuli to keep rates artificially low.

As an aside, even though interest rates are historically low, I think the debt markets are no longer the canary in the coal-mine they once were with regards to economic trouble and equity market gyrations, and this worries me. I am not worried about timing the market, but I am concerned about such fundamental breakdowns in valuation, which could lead to very unpredictable market dynamics and a possible increase in frequency of black swan events (due to distortions in valuation).

On another note, I have always found PE10 intriguing, but lacking (I know, big words from an internet poster lol). Stocks behaved much more like preferred equity and even bonds in the days when liquidity was substantially lower and dividends were categorically higher up until the 1950's, and that has to be somehow reflected in lower valuations. Earnings power was plowed into goosing shareholder income, somewhat at the expense of earnings growth (theoretically) and that was reflected in much lower valuations (this is simply my theory on the matter). That's another paradox: while the American economy more resembled an "emerging market" in those days, the preponderance of equity issues behaved like modern "value" stocks, whereas since the economy has matured there has been an explosion of "growth" issues paying little or no dividends since the 1990's, which remains in vogue to this day.

Dimson and Marsh discuss the US as a former emerging market idea (i.e. at the turn of the last century). For every US there is an Argentina (100+ years ago Argentina was one of the wealthiest countries in the world).
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Re: William Bernstein: the paradox of wealth

Postby Epsilon Delta » Wed Oct 16, 2013 12:12 am

grok87 wrote:Dimson and Marsh discuss the US as a former emerging market idea (i.e. at the turn of the last century). For every US there is an Argentina (100+ years ago Argentina was one of the wealthiest countries in the world).

100+ years ago the US was one of the wealthiest countries in the world. The notion that the US was an emerging market in 1900 requires complete disregard for the facts.

Unless your going to say that everything (except possibly the UK) was an emerging market in 1900, but that's very close to "this time it's different".
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Re: William Bernstein: the paradox of wealth

Postby MIpreRetirey » Wed Oct 16, 2013 12:26 am

I thought the U.K. IS an EM.
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Re: William Bernstein: the paradox of wealth

Postby BackInTheBlack » Wed Oct 16, 2013 12:28 am

Epsilon Delta wrote:
grok87 wrote:Dimson and Marsh discuss the US as a former emerging market idea (i.e. at the turn of the last century). For every US there is an Argentina (100+ years ago Argentina was one of the wealthiest countries in the world).

100+ years ago the US was one of the wealthiest countries in the world. The notion that the US was an emerging market in 1900 requires complete disregard for the facts.

Unless your going to say that everything (except possibly the UK) was an emerging market in 1900, but that's very close to "this time it's different".


I would have to agree with this. When I posited that notion, I was thinking about the period covering the early Republic through Reconstruction (roughly 1780-1880).
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Re: William Bernstein: the paradox of wealth

Postby Epsilon Delta » Wed Oct 16, 2013 1:51 am

BackInTheBlack wrote:
Epsilon Delta wrote:
grok87 wrote:Dimson and Marsh discuss the US as a former emerging market idea (i.e. at the turn of the last century). For every US there is an Argentina (100+ years ago Argentina was one of the wealthiest countries in the world).

100+ years ago the US was one of the wealthiest countries in the world. The notion that the US was an emerging market in 1900 requires complete disregard for the facts.

Unless your going to say that everything (except possibly the UK) was an emerging market in 1900, but that's very close to "this time it's different".


I would have to agree with this. When I posited that notion, I was thinking about the period covering the early Republic through Reconstruction (roughly 1780-1880).


That's certainly defensible, although I'd count the US as a developed market some what earlier. The US Civil war was, after all, one of the first industrial wars. If many countries had had equivalent industry much before the US they would surely have used that capacity for slaughter first.
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Re: William Bernstein: the paradox of wealth

Postby grok87 » Wed Oct 16, 2013 10:20 pm

Epsilon Delta wrote:
grok87 wrote:Dimson and Marsh discuss the US as a former emerging market idea (i.e. at the turn of the last century). For every US there is an Argentina (100+ years ago Argentina was one of the wealthiest countries in the world).

100+ years ago the US was one of the wealthiest countries in the world. The notion that the US was an emerging market in 1900 requires complete disregard for the facts.

Unless your going to say that everything (except possibly the UK) was an emerging market in 1900, but that's very close to "this time it's different".

Thanks. I agree I was wrong. This chart is very interesting.
http://en.wikipedia.org/wiki/List_of_re ... t_GDP_(PPP)_per_capita
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Re: William Bernstein: the paradox of wealth

Postby sperry8 » Wed Nov 20, 2013 4:34 am

Great article, thanks. I do wonder though... you speak of stock dilution of up to 30% in Asian countries with high growth and that this depresses returns. What does this mean and why exactly? Does dilution mean the issuance of more stock? Why would this occur at a higher rate in high growth nations? Because their firms are growing and need more capital to invest? Wouldn't it follow then that the dilution would be tempered by returns on that capital? And in mature low growth countries (e.g., US), you mention stock dilution of 2%. But in a globalized world (and with a growing US population), wouldn't we also need add'l capital to invest?
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Re: William Bernstein: the paradox of wealth

Postby lazyday » Fri Nov 22, 2013 12:52 pm

I like how the article combines several arguments and concepts.

One not included is retiree affordability of new services and products. A long retirement could mean less participation in economic growth.
Considering not just lower return on capital, but the difference between inflation and wage inflation. W Bernstein has written on this difference.
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Re: William Bernstein: the paradox of wealth

Postby abuss368 » Fri Nov 22, 2013 2:01 pm

Thank you for sharing.
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Re: William Bernstein: the paradox of wealth

Postby chaz » Fri Nov 22, 2013 2:48 pm

Bill Bernstein is an excellent author as proved by this thread.
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Re: William Bernstein: the paradox of wealth

Postby cbeck » Sat Nov 23, 2013 2:00 am

This discussion comes down to little more than whether one has an optimistic or pessimistic temperament. Sure, the upward tide of history is plain to see from a point of Olympian detachment. But just how comforting would that view have been to you in the Late Classical period as you looked forward to a thousand years of regression in virtually every aspect of civilization from acres under tillage to significant books published (which was zero, by the way)?
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Re: William Bernstein: the paradox of wealth

Postby kenner » Sat Nov 23, 2013 2:58 am

I have tremendous respect for Bill Bernstein's (wbern's) intellect and knowledge.

So my question is this: In light of the analysis that is the subject of this post, exactly how, if at all, should I change an asset allocation that consists of Total US Stock Market, Total International Stock Market and Total US Bond Market in order to maximize total investment returns for the next 20 years.
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Re: William Bernstein: the paradox of wealth

Postby grok87 » Sat Nov 23, 2013 9:39 am

kenner wrote:I have tremendous respect for Bill Bernstein's (wbern's) intellect and knowledge.

So my question is this: In light of the analysis that is the subject of this post, exactly how, if at all, should I change an asset allocation that consists of Total US Stock Market, Total International Stock Market and Total US Bond Market in order to maximize total investment returns for the next 20 years.

i think one implication is that expected returns will be lower, for the US and other developed markets. both on stocks and bonds. so one can take it as a stay the course type recommendation. i.e. many folks have been saying, bonds are bad these days, let me put most or all of my money in stocks. I think one takeaway that one might glean from Bill's analysis is that, hey guess what, those low bond yields are a symptom that ALL expected returns for the US and developed markets will likely be low. So just stick to the standard 60/40 or 70/30 stock bond mix, don't go 90/10 or 100/0 or anything like that...

cheers,
Last edited by grok87 on Sat Nov 23, 2013 5:28 pm, edited 1 time in total.
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Re: William Bernstein: the paradox of wealth

Postby kenner » Sat Nov 23, 2013 12:17 pm

Thanks, Grok.

If I recall correctly, Dr. Bernstein has been saying for a few years that he expects markets to have lower returns going forward.
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Re: William Bernstein: the paradox of wealth

Postby Valuethinker » Sun Nov 24, 2013 11:25 am

Epsilon Delta wrote:
BackInTheBlack wrote:
Epsilon Delta wrote:
grok87 wrote:Dimson and Marsh discuss the US as a former emerging market idea (i.e. at the turn of the last century). For every US there is an Argentina (100+ years ago Argentina was one of the wealthiest countries in the world).

100+ years ago the US was one of the wealthiest countries in the world. The notion that the US was an emerging market in 1900 requires complete disregard for the facts.

Unless your going to say that everything (except possibly the UK) was an emerging market in 1900, but that's very close to "this time it's different".


I would have to agree with this. When I posited that notion, I was thinking about the period covering the early Republic through Reconstruction (roughly 1780-1880).


That's certainly defensible, although I'd count the US as a developed market some what earlier. The US Civil war was, after all, one of the first industrial wars. If many countries had had equivalent industry much before the US they would surely have used that capacity for slaughter first.


At least some historians think the Americas had a higher living standard (GDP/ capita) almost from the beginning, certainly early 1700s, vs. the English themselves. Evidence from things like probate inventories: the amount of material goods the colonists owned.

In that sense, it's an anachronism to talk about the 'emerging markets' because late 19th century Canada, Australia, Argentina, USA were all richer on a per capita basis than the European motherlands (one of the reasons why people emigrated there).

They were however 'emerging markets' in the nature of many of the companies (transport, banking, raw materials oriented) and in the rapid growth.

The 3 former British colonies have continued to be among the world's richest countries. Argentina has gone backwards (in relative if not absolute terms).
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Re: William Bernstein: the paradox of wealth

Postby Valuethinker » Sun Nov 24, 2013 11:30 am

Epsilon Delta wrote:That's certainly defensible, although I'd count the US as a developed market some what earlier. The US Civil war was, after all, one of the first industrial wars. If many countries had had equivalent industry much before the US they would surely have used that capacity for slaughter first.


http://en.wikipedia.org/wiki/Paraguayan_War

just slightly after: 1864-70. Not industrialized participants, but one of the bloodiest wars in modern history.

http://en.wikipedia.org/wiki/Taiping_Rebellion 1850-64

again China was not highly industrialized but this was the largest civil war in recorded history. Estimated 10-20 millions dead.

Some of the wars fought against aboriginal inhabitants, which were essentially genocidal, had higher levels of slaughter.
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Re: William Bernstein: the paradox of wealth

Postby Epsilon Delta » Sun Nov 24, 2013 1:50 pm

Valuethinker wrote:
Epsilon Delta wrote:That's certainly defensible, although I'd count the US as a developed market some what earlier. The US Civil war was, after all, one of the first industrial wars. If many countries had had equivalent industry much before the US they would surely have used that capacity for slaughter first.


http://en.wikipedia.org/wiki/Paraguayan_War

just slightly after: 1864-70. Not industrialized participants, but one of the bloodiest wars in modern history.

http://en.wikipedia.org/wiki/Taiping_Rebellion 1850-64

again China was not highly industrialized but this was the largest civil war in recorded history. Estimated 10-20 millions dead.

Some of the wars fought against aboriginal inhabitants, which were essentially genocidal, had higher levels of slaughter.

It's not the amount of slaughter that makes it a (more or less) modern war. It's the methods of slaughter. Submarines, balloons, ironclads, parrot guns, rifles, machine guns and railroads and telegraphs. The US advantage in industrial production (including mechanized agriculture) was an important factor in the outcome.

You can slaughter large numbers with low tech sticks and stones, but that's hard if the other side has Gatling guns. Wars tend to use the highest tech available. The weapons involved are, therefore, a measure of technological development.

In sum comparing the US civil war with Crimean War (10 years before) and Franco-Prussian War (5 years after) showed that US industry was fully the equal of that of the European powers at that time.
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Re: William Bernstein: the paradox of wealth

Postby manwithnoname » Sun Nov 24, 2013 7:49 pm

kenner wrote:Thanks, Grok.

If I recall correctly, Dr. Bernstein has been saying for a few years that he expects markets to have lower returns going forward.


Why? Does he have a crystal ball of future investment returns?
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Re: William Bernstein: the paradox of wealth

Postby Bill Bernstein » Mon Nov 25, 2013 1:09 am

No.

I have the Gordon Equation.

So does Mr. Bogle.

Bill
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Re: William Bernstein: the paradox of wealth

Postby grok87 » Mon Nov 25, 2013 1:50 am

manwithnoname wrote:
kenner wrote:Thanks, Grok.

If I recall correctly, Dr. Bernstein has been saying for a few years that he expects markets to have lower returns going forward.


Why? Does he have a crystal ball of future investment returns?


quote="wbern"]No.

I have the Gordon Equation.

So does Mr. Bogle.

Bill[/quote]

So what Dr. Bernstein is saying is that

Expected Real Stock Return = Dividend Yield + Expected real Dividend Growth + "Change in Multiple"

A) Dividend yield = 2% (for the S&P 500)

B) Expected Dividend Growth historically has been about 1.3%
http://www.kiss4investing.com/investmen ... owth-rates

C) It's hard to see much of a benefit from change in multiple with the Shiller CAPE (aka PE10) at 25. So call that 0.

So Expected real stock return = 2% + 1.3% + 0% = 3.3%.

10 year break-even inflation is about 2.2%. So expected nominal stock return would be about 5.5%.

cheers,
grok, CFA | Danon delenda est
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Re: William Bernstein: the paradox of wealth

Postby manwithnoname » Mon Nov 25, 2013 1:52 am

wbern wrote:No.

I have the Gordon Equation.

So does Mr. Bogle.

Bill


You mean this equation:

"There are three pieces of information necessary to properly determine the value of a stock: the dividend per share (D), rate of return (K), and dividend growth rate (G). In order to properly execute the Gordon Growth Model, G must first be subtracted from K. This result must then be divided by D. The resulting number will be the approximate value of any stock. This equation's accuracy depends on the assumption that the stock will continue steadily increasing in value over the next year in order to determine the dividend per share. It is therefore usually only applied to blue-chip stocks because of their dependability.

The assumed increased value of the stock is not the only questionable aspect of the Gordon Growth Model. Financial experts must also be concerned if the value of K and G are too close, because the results will not be accurate. Also, the equation does not work with growth stocks because they do not pay a dividend. When these problems arise, different financial techniques must be utilized to determine the value of the stock in question. "

The only infallible equation in investing is buy low, sell high because you don't need some professor's made up metrics to know what the result is.
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