Why do we expect TSM to keep growing?

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chase_logi
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Why do we expect TSM to keep growing?

Post by chase_logi » Wed Sep 12, 2018 4:11 pm

It seems that one of the main principle of Bogleheads is "time in the market". This implies that, over the very long course, stock market tends to go up and give us positive real return to our investments. I am curious to hear from the collective knowledge here what is the reasoning behind that belief.

My questions are two-folds:

1. What is the first principle behind the expectation that total stock market (eg, investing in 100% VTI) will give us positive real return over the long term?
2. What are some exceptions in which that is not true over the long run?


Here are my take on those two questions, feel free to correct or add your thoughts into this:

1. Productivity of humankind tend to increase over time. Societies learn and discover new breakthroughs all the time, which translates into higher productivity for everyone. This increase in productivity is reflected in higher productivity of companies, which in turn allows them to become bigger and profitable. Since you are investing in total stock market, your investment essentially grows together as societies become more productive in general.

2. A few examples on when that rule does not apply, however unlikely they are:
  • Imagine a future in which a BigMegaPrivateCompany took over the economy and replaces the function of FAANG companies. However, since it is a private company, it is not reflected in your total stock market investment. As that BigMegaPrivateCompany grow even further, it kills all of the other companies that are part of the TSM. TSM market cap keeps decreasing and you as an investor do not get your return.
  • Likewise, a future which are dominated by smaller but private companies could reduce the long term profit of public companies. Note that, in these two examples, the world's productivity is likely still increasing. It is just that we as a common investor might not have an easy way to tap into those growth.
  • I guess there is also the possibility that world catasthrophe (eg, nuclear war, pandemic outbreak, etc) could significanly affect global productivity.
Any other thoughts or comments?

Tamalak
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Re: Why do we expect TSM to keep growing?

Post by Tamalak » Wed Sep 12, 2018 4:17 pm

Another reason we expect it to keep growing is that the price adjusts itself to something that is reasonably expected to provide a positive return.

If a positive return is not expected, the price would plummet until it was.

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willthrill81
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Re: Why do we expect TSM to keep growing?

Post by willthrill81 » Wed Sep 12, 2018 4:20 pm

One of the ideas behind TSM going up over the long-term is the success of capitalism. If capitalism succeeds, then companies are highly likely to do well also.

Privately held companies are a factor but currently a small one. The 2000 companies in the Forbes Global list had revenues of $39.1 trillion in 2017, compared to the 441 largest U.S. privately held companies $1.6 trillion, less than 5% that of the former. And the total revenue of privately held companies is down over the last decade by around $200 billion. Besides, there are advantages in going public, namely, the raising of capital, the creation of an exit strategy by the company's founders, and notoriety.
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David Jay
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Re: Why do we expect TSM to keep growing?

Post by David Jay » Wed Sep 12, 2018 4:25 pm

TSM invests in real companies with real earnings. The leadership of these companies will continue to deliver goods and services in new and innovative ways, increasing the value of the companies.

If you don't believe that business case, I don't know what to buy. Government bonds won't work because the government will default if the economy permanently collapses. CDs are guaranteed by that same government.
Last edited by David Jay on Wed Sep 12, 2018 4:26 pm, edited 1 time in total.
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retiringwhen
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Re: Why do we expect TSM to keep growing?

Post by retiringwhen » Wed Sep 12, 2018 4:25 pm

The first principle is that aggregate economic activity and profits have been growing for as long as it can be tracked in Western Market economies. When speculation is removed from the equation, the value of all of the companies participating in public markets must go up to reflect these increases in economic activity and profits.

The exception is if you expect or experience a long-term retraction in economic activity, then it would reasonable to expect that the total market indices would actually shrink.

Note, I explicitly left out the issue of speculation (aka changes in the Price/Earnings ratio) as it is ephemeral and not subject to fundamental expectations or first principles. P/E changes reflect in the end no more or no less than sentiment about the relative trajectory of the economic activity.

The only thing that truly underpins an assumption of growth is actual economic growth and profits made.

HEDGEFUNDIE
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Re: Why do we expect TSM to keep growing?

Post by HEDGEFUNDIE » Wed Sep 12, 2018 4:26 pm

Companies will keep growing because population and productivity will keep growing. As long as the Fed keeps the money supply growing apace the party will continue...

retiringwhen
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Re: Why do we expect TSM to keep growing?

Post by retiringwhen » Wed Sep 12, 2018 4:27 pm

Another exception could be the fewer companies participate in publicly traded equity markets. That has not happened over a significant time period that I know of when measured by market capitalization.

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Re: Why do we expect TSM to keep growing?

Post by willthrill81 » Wed Sep 12, 2018 4:30 pm

David Jay wrote:
Wed Sep 12, 2018 4:25 pm
TSM invests in real companies with real earnings. The leadership of these companies will continue to deliver goods and services in new and innovative ways, increasing the value of the companies.

If you don't believe that business case, I don't know what to buy. Government bonds won't work because the government will default if the economy permanently collapses. CDs are guaranteed by that same government.
:thumbsup

Those with grave doubts about the long-term viability of capitalism don't have many options left, maybe direct real estate and precious metals I suppose.
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Re: Why do we expect TSM to keep growing?

Post by rkhusky » Wed Sep 12, 2018 4:37 pm

We could reach a plateau where the NAV doesn't increase and all you are left with are dividends.

retiringwhen
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Re: Why do we expect TSM to keep growing?

Post by retiringwhen » Wed Sep 12, 2018 4:44 pm

rkhusky wrote:
Wed Sep 12, 2018 4:37 pm
We could reach a plateau where the NAV doesn't increase and all you are left with are dividends.
How? That seems unlikely, I guess we could have zero economic growth, but I doubt that is a tenable status. I would think any extended period with a lack of growth would cause a major drop in NAV due to the speculation component of NAV.

Remember most recessions last less than 18 mos.

In other words, capitalism/equity markets are built on a fundamental assumption of growth and essentially optimism.

I agree with the previous poster that the only alternative to optimism is hard goods including gold and real estate.

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Re: Why do we expect TSM to keep growing?

Post by GrowthSeeker » Wed Sep 12, 2018 5:53 pm

A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
Just because you're paranoid doesn't mean they're NOT out to get you.

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randomizer
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Re: Why do we expect TSM to keep growing?

Post by randomizer » Wed Sep 12, 2018 6:00 pm

The nutshell version: human endeavor - all the people working at publicly traded companies striving to make them (more) profitable. Unless we run out of food or go extinct, humans will find a way to profit.
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Re: Why do we expect TSM to keep growing?

Post by MJW » Wed Sep 12, 2018 7:18 pm

GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
Hopefully my portfolio is diversified to withstand such an event. Maybe add 10% or so to bonds? :?

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Re: Why do we expect TSM to keep growing?

Post by Phineas J. Whoopee » Wed Sep 12, 2018 7:46 pm

I notice you use the Universal We. You do not speak for the Individual Me.

I am trying to manage the risk of running out of resources during my own personal lifetime, while continuing to lead a reasonable (to me) lifestyle. I do not expect TSM to keep growing. I'm using evidence and using stocks as one part of my plan.

My plan may fail.

With respect to my portfolio I see my role as that of a risk manager, not a return maximizer.

Others view their own roles as they please.

PJW

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Re: Why do we expect TSM to keep growing?

Post by abuss368 » Wed Sep 12, 2018 7:59 pm

GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
If such a tragic event occurred I am not sure I would be thinking about our investment portfolio.
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Re: Why do we expect TSM to keep growing?

Post by abuss368 » Wed Sep 12, 2018 8:00 pm

* Earnings Growth
* Dividend Yield

That should continue to increase TSM.
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Phineas J. Whoopee
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Re: Why do we expect TSM to keep growing?

Post by Phineas J. Whoopee » Wed Sep 12, 2018 8:09 pm

GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
I'm afraid, GrowthSeeker, that as defined by Taleb if you can conceive of it at all in advance it is not a black swan. You've already thought of those two things, and even considered their possible consequences, therefore they cannot be black swans.

You're just listing known unfortunate possibilities; things which have happened before we already know about.

I am no supporter of Taleb, but let's give credit for the concept where it's due.

PJW

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Re: Why do we expect TSM to keep growing?

Post by livesoft » Wed Sep 12, 2018 8:15 pm

My answer would be very simple:

1. Inflation keeps companies going up in dollar amount, and

2. Companies that cannot survive in the dog-eat-dog world fail (by definition), so as long as more companies survive and new one's appear to replace the failed one's ... in my lifetime, then I think I will be fine.

And to round out the philosophy, there are plenty of end of the world movies. On the Beach comes to mind, but does Interstellar count, too?
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Phineas J. Whoopee
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Re: Why do we expect TSM to keep growing?

Post by Phineas J. Whoopee » Wed Sep 12, 2018 8:24 pm

Stein's law: If something cannot go on forever, it will stop.

That's one way to answer but what if it can't go on forever? We don't know what specific finite time less than forever it will turn out to be.

We have to play the hand we're dealt.

PJW

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Re: Why do we expect TSM to keep growing?

Post by Thesaints » Wed Sep 12, 2018 8:34 pm

I don't think productivity has to keep increasing for the stock market to continue providing positive returns (in the long run, it goes without saying).

There is a well know formula that breaks future returns in terms of: dividend payout, earnings growth, changes in valuation.
If we assume that changes in valuation have a net null effect in the long run, we are left with the other two ingredients.
Once we take inflation out earnings growth can still be positive, even with no increase in productivity, if the portion of the economy represented in the stock market grows.
Also net (of inflation) dividends can be positive and contribute as well.

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Re: Why do we expect TSM to keep growing?

Post by retiringwhen » Wed Sep 12, 2018 8:48 pm

Thesaints wrote:
Wed Sep 12, 2018 8:34 pm
I don't think productivity has to keep increasing for the stock market to continue providing positive returns (in the long run, it goes without saying).

There is a well know formula that breaks future returns in terms of: dividend payout, earnings growth, changes in valuation.
If we assume that changes in valuation have a net null effect in the long run, we are left with the other two ingredients.
Once we take inflation out earnings growth can still be positive, even with no increase in productivity, if the portion of the economy represented in the stock market grows.
Also net (of inflation) dividends can be positive and contribute as well.
What makes the portion of economy represented by stocks grow?

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Re: Why do we expect TSM to keep growing?

Post by Thesaints » Wed Sep 12, 2018 9:06 pm

retiringwhen wrote:
Wed Sep 12, 2018 8:48 pm
What makes the portion of economy represented by stocks grow?
Portion of the Chinese economy represented by the stock market in 1990: 0%. In 2018: ~65% (https://fred.stlouisfed.org/series/DDDM01CNA156NWDB), for example.

A company going public makes the portion increase, when it goes private makes it decrease. Of course, there are productive activities which are never represented.

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Phineas J. Whoopee
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Re: Why do we expect TSM to keep growing?

Post by Phineas J. Whoopee » Wed Sep 12, 2018 10:12 pm

Thesaints wrote:
Wed Sep 12, 2018 8:34 pm
...
There is a well know formula that breaks future returns in terms of: dividend payout, earnings growth, changes in valuation.
...
Dividend payouts directly diminish valuation, in both funds and individual stocks. There's no way to escape that a withdrawal is a withdrawal, even if the cash is immediately reinvested.

Earnings growth is a genuine effect, but what if it can't go on forever?

PJW

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dccboone
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Re: Why do we expect TSM to keep growing?

Post by dccboone » Wed Sep 12, 2018 10:27 pm

I hope for some growth over time. Either way, I’m just along for the ride. :D

retiringwhen
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Re: Why do we expect TSM to keep growing?

Post by retiringwhen » Wed Sep 12, 2018 10:29 pm

Thesaints wrote:
Wed Sep 12, 2018 9:06 pm
retiringwhen wrote:
Wed Sep 12, 2018 8:48 pm
What makes the portion of economy represented by stocks grow?
Portion of the Chinese economy represented by the stock market in 1990: 0%. In 2018: ~65% (https://fred.stlouisfed.org/series/DDDM01CNA156NWDB), for example.

A company going public makes the portion increase, when it goes private makes it decrease. Of course, there are productive activities which are never represented.
See China in 1940s for the counter-example. The economy does not inexorably move to public markets.

The only thing that makes the stock market grow is an expanding economy with increasing productivity. Everything else is fleeting.

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Re: Why do we expect TSM to keep growing?

Post by Thesaints » Wed Sep 12, 2018 10:47 pm

Phineas J. Whoopee wrote:
Wed Sep 12, 2018 10:12 pm
Dividend payouts directly diminish valuation, in both funds and individual stocks.[/url] There's no way to escape that a withdrawal is a withdrawal, even if the cash is immediately reinvested.

Earnings growth is a genuine effect, but what if it can't go on forever?

PJW
Dividends are part of your total return. I fail to see your point.
retiringwhen wrote:
Wed Sep 12, 2018 10:29 pm
See China in 1940s for the counter-example. The economy does not inexorably move to public markets.

The only thing that makes the stock market grow is an expanding economy with increasing productivity. Everything else is fleeting.
Not necessarily. Productivity can double up in Cuba and you still don't make a dime in the stock market.
Also, total economy is not a pie of fixed size. The stock market can expand over new sectors, adding the relative profits to the total.

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Re: Why do we expect TSM to keep growing?

Post by Phineas J. Whoopee » Thu Sep 13, 2018 12:02 am

Thesaints wrote:
Wed Sep 12, 2018 10:47 pm
Phineas J. Whoopee wrote:
Wed Sep 12, 2018 10:12 pm
Dividend payouts directly diminish valuation, in both funds and individual stocks.[/url] There's no way to escape that a withdrawal is a withdrawal, even if the cash is immediately reinvested.

Earnings growth is a genuine effect, but what if it can't go on forever?

PJW
Dividends are part of your total return. I fail to see your point.
...
Both dividends and price changes are parts of total return. A dividend is directly reflected in a reduction of share price, as the link I originally provided says. It focuses on funds, but the underlying stocks work the same way.

Get a dollar in dividend, lose a dollar in share price. It's a wash, except if it causes you to owe income tax you otherwise wouldn't. It can be hard to see because of course stock prices are are still subject to all the other elements that affect them day to day.

If you own one share that's worth $100 and it pays a $1 dividend, you end up with one share worth $99 plus $1 in cash, for a total value of $100, but you may have to pay income tax. If you own one share worth $100 and it doesn't pay a dividend you end up with a total value of $100, but you don't have to pay income tax.

Stock dividends do not increase one's wealth. They don't work at all like bond interest, or like a savings account.

That's my point. If you still fail to see it please say so and I'll try again.

PJW

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Re: Why do we expect TSM to keep growing?

Post by airelleofmusic » Thu Sep 13, 2018 7:31 am

Because LT bonds can earn 3.0% a year, so TSM is expected to earn more as it is riskier.
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Re: Why do we expect TSM to keep growing?

Post by stan1 » Thu Sep 13, 2018 7:41 am

Capitalism requires growing markets, and growing markets feed capitalism. The world population keeps growing. As an individual investor in the stock market your interests are for the most part aligned with powerful and wealthy institutions that will act to protect their interests. In retrospect we saw this happen during the financial crisis of 2008. It wasn't perfect and you may disagree with some of the decisions that were made at the time. There may be unknown future consequences but the system took care of itself and most of those who rode along ended up fine. That's another benefit of diversification in equities and bonds. You didn't need to choose in advance whether Lehman, Bear, Citi, Goldman Sachs, B of A, Countrywide, or Merrill Lynch survived.

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Re: Why do we expect TSM to keep growing?

Post by Mursili » Thu Sep 13, 2018 10:02 am

Phineas J. Whoopee wrote:
Wed Sep 12, 2018 10:12 pm
Earnings growth is a genuine effect, but what if it can't go on forever?

PJW
You made a loop in this thread back to an earlier post - if people read all of the links they will be in a loop that goes on forever...

An important way that companies get capital is through the stock market represented by TSM. This is so, presumably, because it is better than other means of raising capital. If a better means of raising capital was found, then someone would figure out a way for investors to place their capital there straightforwardly (thanks Mr. Bogle). If that did not happen, then it would be more difficult to obtain capital that way since the capital would not be there. Until companies do not need capital to do what they do, we will have some mechanism to invest in them - right now that is TSM.
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Re: Why do we expect TSM to keep growing?

Post by Valuethinker » Thu Sep 13, 2018 10:25 am

chase_logi wrote:
Wed Sep 12, 2018 4:11 pm
It seems that one of the main principle of Bogleheads is "time in the market". This implies that, over the very long course, stock market tends to go up and give us positive real return to our investments. I am curious to hear from the collective knowledge here what is the reasoning behind that belief.

My questions are two-folds:

1. What is the first principle behind the expectation that total stock market (eg, investing in 100% VTI) will give us positive real return over the long term?
2. What are some exceptions in which that is not true over the long run?


Here are my take on those two questions, feel free to correct or add your thoughts into this:

1. Productivity of humankind tend to increase over time. Societies learn and discover new breakthroughs all the time, which translates into higher productivity for everyone. This increase in productivity is reflected in higher productivity of companies, which in turn allows them to become bigger and profitable. Since you are investing in total stock market, your investment essentially grows together as societies become more productive in general.
Remember though that new technology tends to disrupt industry incumbents.

Consider the "Nifty Fifty" superstocks of the early 1970s which included Kodak, Polaroid ... see the problem?

It's observable that the earnings of the stock market don't tend to grow as fast as real GDP (although for the US stock market, in the last 30 years, they have exceeded it, I believe). Thus unless we believe the Price to Earnings Ratio of the stock market can rise towards infinity, eventually stock market has to underperform.

At issue is who gets the benefit of the productivity gains - the worker, or the capital owner? A number of 18-19th century thinkers wrestled with this - David Ricardo and Karl Marx in particular. If you read Thomas Piketty, this is not solved yet.

What is observable is that there are cycles. Maybe robots and Artificial Intelligence give capital extraordinary power over workers. But, maybe, the people who look after us in our old age homes get their bargaining mojo back. It's hard to see a robot doing some of that work and the demographics are pretty much one way for the developed world (and much of the developing world).
2. A few examples on when that rule does not apply, however unlikely they are:
  • Imagine a future in which a BigMegaPrivateCompany took over the economy and replaces the function of FAANG companies. However, since it is a private company, it is not reflected in your total stock market investment. As that BigMegaPrivateCompany grow even further, it kills all of the other companies that are part of the TSM. TSM market cap keeps decreasing and you as an investor do not get your return.
  • Likewise, a future which are dominated by smaller but private companies could reduce the long term profit of public companies. Note that, in these two examples, the world's productivity is likely still increasing. It is just that we as a common investor might not have an easy way to tap into those growth.
  • I guess there is also the possibility that world catasthrophe (eg, nuclear war, pandemic outbreak, etc) could significanly affect global productivity.
Any other thoughts or comments?
There's a book out there that massive accumulations of wealth are followed with periods of extreme violence. Periodically we have wars and revolutions (the period 1914-1920s comes to mind, and the fall of the Russian monarchy and aristocracy, as well as the German, Austro-Hungarian etc.; then the Russian Revolution & Civil War, WW2 in Germany and Central Europe; the Chinese-Japanese war and Chinese Revolution thereafter) to redistribute things, and the cycle begins again.

Setting aside such unpleasant thoughts it's true that private companies appear to grow profits faster than public ones.

It has been the buyback of shares (raising EPS = Profit After Tax/ Number of Shares in Issue) that has driven EPS for quoted US stocks (to a greater extent than in the past). That is related, I am sure, to the prevalence of stock options as a form of executive compensation. I think there's good empirical evidence for that, too.

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Re: Why do we expect TSM to keep growing?

Post by GoldStar » Thu Sep 13, 2018 11:54 am

Companies produce income. If they don't, they eventually fail. Investors receive some of this income either through dividends or increased stock value (or some combination of the two).

This is the very reason why I do NOT invest in commodities/precious-metals, they don't produce anything, grow, etc.

Warren Buffet:
"The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn't going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time."

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Re: Why do we expect TSM to keep growing?

Post by rgs92 » Thu Sep 13, 2018 12:06 pm

Owning stock will track the spending power of the money you put in to them (in either direction).
Spending power is the main point of investing.

The price of a company's stock should *roughly* track (and often exceed or far exceed) the prices of the goods and services you purchase from that company. Company profits are derived from what people are spending on their products. Prices go up and then profits go up.
(See livesoft's comment earlier about inflation.)

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Re: Why do we expect TSM to keep growing?

Post by Thesaints » Thu Sep 13, 2018 1:48 pm

Phineas J. Whoopee wrote:
Thu Sep 13, 2018 12:02 am
Both dividends and price changes are parts of total return. A dividend is directly reflected in a reduction of share price, as the link I originally provided says. It focuses on funds, but the underlying stocks work the same way.

Get a dollar in dividend, lose a dollar in share price. It's a wash, except if it causes you to owe income tax you otherwise wouldn't. It can be hard to see because of course stock prices are are still subject to all the other elements that affect them day to day.

If you own one share that's worth $100 and it pays a $1 dividend, you end up with one share worth $99 plus $1 in cash, for a total value of $100, but you may have to pay income tax. If you own one share worth $100 and it doesn't pay a dividend you end up with a total value of $100, but you don't have to pay income tax.

Stock dividends do not increase one's wealth. They don't work at all like bond interest, or like a savings account.

That's my point. If you still fail to see it please say so and I'll try again.

PJW
I like to reason in terms of total return. It does not make any difference if I get it in dividends, appreciation, or a mix (bar different tax treatment).
Therefore total return from the stock market can be seen as coming from dividend return, earnings growth, and earnings valuation. It is just algebra.

OP question was "why do we expect the stock market to keep growing ? " (i.e. "why do we expect to keep making money out of a stock market investment", I think).
Someone else associated such expectation to a continued increase in productivity. My comment was that it is not a necessary condition.
I don't understand why you brought in dividends vs. appreciation. If TSM paid a 10% dividend while maintaining a fixed value I'd make more money than if its value increased 5%/year while paying no dividends.

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Re: Why do we expect TSM to keep growing?

Post by Valuethinker » Fri Sep 14, 2018 6:17 am

GoldStar wrote:
Thu Sep 13, 2018 11:54 am
Companies produce income. If they don't, they eventually fail. Investors receive some of this income either through dividends or increased stock value (or some combination of the two).
The big problem is governance.

I knew a guy who had managed the largest external mutual fund investing in India (this was back in the early-mid 1990s).

His observation was that the Indian economy grew, but insider shareholders and corporate managers took that value away from external shareholders (who have no day to day involvement in the management of the companies). Russia certainly has also followed that pattern since the end of communism- a small group of insiders, politically grouped around the rulers, have extracted most of the value created in corporate Russia (ask the former shareholders of Yukos oil ;-).

Buffett manages to solve the corporate governance conundrum. He takes large stakes in quoted companies like Amex or Wells Fargo, and sits on the Board. Where he cannot structure the business to create shareholder value (as for example Salomon Brothers) he walks away. In situations like GE and Goldman Sachs he let those companies money at an effective interest rate of 10% *as well as* having convertibility into the underlying equity.

Otherwise he takes 100% control of the companies - Netjets, his railroad interests, his electric power interests, GEICO itself.

Buffett himself says if you cannot do that, you need to be as broadly diversified as you can be.
This is the very reason why I do NOT invest in commodities/precious-metals, they don't produce anything, grow, etc.

Warren Buffet:
"The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn't going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time."
[/quote]

There's good sense in that.

In an economic sense, there is probably some inherent return in commodities in that they (should) get scarcer over time -- a social rate of interest if you will. However if you look at the actual track of commodity prices, the improvements in the technology of extraction and efficiency in use has meant that they, generally, have not experienced real growth in prices. Oil & gas are of course the canonical examples, because even though they are used up they do not seem to get materially scarcer - new extraction technology just moves the extractible reserves frontier out.

I have some sympathy for the view that certain sorts of commodity production, like timber and good agricultural land, should produce a positive real return in the long run. But in the UK the long run estimate for real returns from agricultural land is about 1% p.a. so significantly below stocks or commercial real estate. And you have weather & disease risk of course.

UpperNwGuy
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Re: Why do we expect TSM to keep growing?

Post by UpperNwGuy » Fri Sep 14, 2018 8:44 am

What exactly is the purpose of this thread? Is somebody here thinking of getting out of the market because they don't expect it to keep growing?

Thesaints
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Re: Why do we expect TSM to keep growing?

Post by Thesaints » Fri Sep 14, 2018 4:45 pm

UpperNwGuy wrote:
Fri Sep 14, 2018 8:44 am
What exactly is the purpose of this thread? Is somebody here thinking of getting out of the market because they don't expect it to keep growing?
Well, it is not useless to try understand where stockholders profits come from. That is useful information, for instance, when one has to decide whether the 10% historical return rate is still a valid benchmark going forward, or not.

MotoTrojan
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Re: Why do we expect TSM to keep growing?

Post by MotoTrojan » Fri Sep 14, 2018 4:57 pm

retiringwhen wrote:
Wed Sep 12, 2018 4:27 pm
Another exception could be the fewer companies participate in publicly traded equity markets. That has not happened over a significant time period that I know of when measured by market capitalization.
Some have feared that the small-cap premium could be reduced since many of the most successful business stay private a lot longer (ie. Uber, Air BnB, WeWork, SpaceX, etc...). Apple/Amazon seem to be doing just fine atop the mega-cap realm though so TSM should be okay :).

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Re: Why do we expect TSM to keep growing?

Post by Dottie57 » Fri Sep 14, 2018 5:09 pm

GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
In many ways I hope I don’t survive those.

hdas
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Re: Why do we expect TSM to keep growing?

Post by hdas » Sun Sep 16, 2018 6:46 pm

Technology......the book Technological Revolutions and Financial Capital by Carlota Perez offers a nice framework to understand the relationship. H
Stay the course and buy some more.

Turbo29
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Re: Why do we expect TSM to keep growing?

Post by Turbo29 » Sun Sep 16, 2018 7:56 pm

GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.

The plague in Europe killed >30% of the population and resulted in wages increasing. So it's not necessarily a foregone conclusion what the results of this would be.

Would a massive earthquake in California raise or lower housing prices? If people no longer want to live there it might lower them but if people compete for undamaged properties it might raise them.

phantom0308
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Re: Why do we expect TSM to keep growing?

Post by phantom0308 » Sun Sep 16, 2018 9:43 pm

To add to 2:
The stock market and productivity are only weakly linked. China has had a stellar economy for a while and a poor stock market over much of that growth. My guess is that well-regulated markets are a critical component to continued stock market growth though I’m willing to be persuaded otherwise. One of the strengths of the US has been (and hopefully will continue to be) pro-market laws and stable rule of law.

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willthrill81
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Re: Why do we expect TSM to keep growing?

Post by willthrill81 » Sun Sep 16, 2018 9:50 pm

Dottie57 wrote:
Fri Sep 14, 2018 5:09 pm
GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
In many ways I hope I don’t survive those.
Well at least with the latter there are definite steps you could take now to prepare for that. As others have noted, Europe experienced at least that casualty rate with the Black Death. The biggest thing is to be prepared to not leave your home for several months at least.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

CurlyDave
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Re: Why do we expect TSM to keep growing?

Post by CurlyDave » Sun Sep 16, 2018 10:11 pm

willthrill81 wrote:
Wed Sep 12, 2018 4:30 pm

...Those with grave doubts about the long-term viability of capitalism don't have many options left, maybe direct real estate and precious metals I suppose.
Direct real estate owners are capitalists just like stock owners.

IDK about precious metals owners. I suspect they also count as capitalists.

If one has doubts about the long-term prospects of capitalism, I think the only real option is moving to a socialist country. Venezuela becons!

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watchnerd
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Re: Why do we expect TSM to keep growing?

Post by watchnerd » Mon Sep 17, 2018 12:25 am

GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
GOLD!!!
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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watchnerd
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Re: Why do we expect TSM to keep growing?

Post by watchnerd » Mon Sep 17, 2018 12:27 am

Thesaints wrote:
Fri Sep 14, 2018 4:45 pm
UpperNwGuy wrote:
Fri Sep 14, 2018 8:44 am
What exactly is the purpose of this thread? Is somebody here thinking of getting out of the market because they don't expect it to keep growing?
Well, it is not useless to try understand where stockholders profits come from. That is useful information, for instance, when one has to decide whether the 10% historical return rate is still a valid benchmark going forward, or not.
I thought 8% was the new benchmark?

Or is it 7%?

I get so confused by the various crystal balls....
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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JoMoney
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Re: Why do we expect TSM to keep growing?

Post by JoMoney » Mon Sep 17, 2018 12:45 am

watchnerd wrote:
Mon Sep 17, 2018 12:25 am
GrowthSeeker wrote:
Wed Sep 12, 2018 5:53 pm
A global SHTF black Swan event such as a massive meteor strike or a global epidemic killing 1/3 of the Earth’s population could do it.
GOLD!!!
Ironically perhaps, some theories suggest gold came from meteors, what a bad day that would be, that a strategic store of gold in the event of a meteor strike is rendered worthless by a gold meteor :shock:
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

WanderingDoc
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Re: Why do we expect TSM to keep growing?

Post by WanderingDoc » Mon Sep 17, 2018 12:47 am

watchnerd wrote:
Mon Sep 17, 2018 12:27 am
Thesaints wrote:
Fri Sep 14, 2018 4:45 pm
UpperNwGuy wrote:
Fri Sep 14, 2018 8:44 am
What exactly is the purpose of this thread? Is somebody here thinking of getting out of the market because they don't expect it to keep growing?
Well, it is not useless to try understand where stockholders profits come from. That is useful information, for instance, when one has to decide whether the 10% historical return rate is still a valid benchmark going forward, or not.
I thought 8% was the new benchmark?

Or is it 7%?

I get so confused by the various crystal balls....
Dave Ramsey told me it was 12%.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

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JoMoney
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Re: Why do we expect TSM to keep growing?

Post by JoMoney » Mon Sep 17, 2018 12:51 am

WanderingDoc wrote:
Mon Sep 17, 2018 12:47 am
watchnerd wrote:
Mon Sep 17, 2018 12:27 am
Thesaints wrote:
Fri Sep 14, 2018 4:45 pm
UpperNwGuy wrote:
Fri Sep 14, 2018 8:44 am
What exactly is the purpose of this thread? Is somebody here thinking of getting out of the market because they don't expect it to keep growing?
Well, it is not useless to try understand where stockholders profits come from. That is useful information, for instance, when one has to decide whether the 10% historical return rate is still a valid benchmark going forward, or not.
I thought 8% was the new benchmark?

Or is it 7%?

I get so confused by the various crystal balls....
Dave Ramsey told me it was 12%.
They could all be correct since what was initially stated was "historical return"...
12% has been the arithmetic average historical return
10% has been the geometric average historical return
7% has been the inflation adjusted geometric return
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Que1999
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Re: Why do we expect TSM to keep growing?

Post by Que1999 » Tue Sep 18, 2018 8:12 pm

JoMoney wrote:
Mon Sep 17, 2018 12:51 am
WanderingDoc wrote:
Mon Sep 17, 2018 12:47 am
watchnerd wrote:
Mon Sep 17, 2018 12:27 am
Thesaints wrote:
Fri Sep 14, 2018 4:45 pm
UpperNwGuy wrote:
Fri Sep 14, 2018 8:44 am
What exactly is the purpose of this thread? Is somebody here thinking of getting out of the market because they don't expect it to keep growing?
Well, it is not useless to try understand where stockholders profits come from. That is useful information, for instance, when one has to decide whether the 10% historical return rate is still a valid benchmark going forward, or not.
I thought 8% was the new benchmark?

Or is it 7%?

I get so confused by the various crystal balls....
Dave Ramsey told me it was 12%.
They could all be correct since what was initially stated was "historical return"...
12% has been the arithmetic average historical return
10% has been the geometric average historical return
7% has been the inflation adjusted geometric return
So Dave Ramsey has been right all along!?! :oops:

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