stock market goes up 5x every 15 years?

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supercross
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stock market goes up 5x every 15 years?

Post by supercross » Thu Mar 26, 2020 10:33 am

Someone told me a while back that his friend did an analysis of the stock market starting in the 1930 (i think) and the study showed that the stock market goes up 5x every 15 years, even in times like these. What do you think?

livesoft
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Re: stock market goes up 5x every 15 years?

Post by livesoft » Thu Mar 26, 2020 10:34 am

I think you need to do your own analysis.
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willthrill81
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Re: stock market goes up 5x every 15 years?

Post by willthrill81 » Thu Mar 26, 2020 10:41 am

supercross wrote:
Thu Mar 26, 2020 10:33 am
Someone told me a while back that his friend did an analysis of the stock market starting in the 1930 (i think) and the study showed that the stock market goes up 5x every 15 years, even in times like these. What do you think?
Adjusted for inflation, it's been about 6.9% annually. At that rate of return, an investment of $100 would become $272 in 15 years, not $500.
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vipertom1970
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Re: stock market goes up 5x every 15 years?

Post by vipertom1970 » Thu Mar 26, 2020 10:51 am

look up rule of 72...….. 72/average return=Time for investment to double

iamblessed
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Re: stock market goes up 5x every 15 years?

Post by iamblessed » Thu Mar 26, 2020 12:10 pm

Not Adjusted for inflation it is about 10%

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nisiprius
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Re: stock market goes up 5x every 15 years?

Post by nisiprius » Thu Mar 26, 2020 1:04 pm

Rule of 72. The rule of 72 tells the number of years to double: divide 72 by the annual percentage growth.

The historic nominal (number of dollars) total return (price growth plus dividends) of the US stock market, in the past, over long periods of time like 90 years, has been around 10%±1. The real return--adjusted for inflation, which is really the right number to use--has been more like 6%.

So the stock market has doubled in nominal terms about every 7.2 years; let's be realistic about precision here, I said 10%±1, so let's say every 6.5 to 8.

But in real terms--adjusted for inflation--about every 12 years.

High school math (if you happened to like math, in high school) tells us that if it doubles in Y years, it takes (ln 5 / ln 2) x y = 2.32 x Y years. So it has grown about 5X, in nominal terms, every 16 years; in real terms, every 28 years.

But those are averages. It is definitely not true that it has done this "even in times like these." From 1966 through 1982, a period of 17 years, in real terms the stock market failed to keep up with inflation. It earned a very slightly negative real return. And since income tax is based strictly on the number of dollars, in a taxable account it lost even more because of taxation.

Here's a chart of how an investment of $10,000 in the world's first mutual fund, the Massachusetts Investors' Trust, would have grown since it began. This includes dividends but it is not adjusted for inflation. Still: wheeeee! $10,000 to $36 million! Just by doing nothing! Of course, bad luck compounds too, so rather than proving that everybody ought to be rich, it might just prove that it is almost impossible to put money into a mutual fund and leave it there, just doing nothing, for 96 years.

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firebirdparts
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Re: stock market goes up 5x every 15 years?

Post by firebirdparts » Thu Mar 26, 2020 2:30 pm

the 15th root of 5 is 1.11 or a geometric 11%. I'm too lazy to comment further.

You believe that? A bunch of more famouser people also put out future estimates that were pretty low. Your buddy might be a better estimator than the famous guys are, but it's impossible to say right now.
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Re: stock market goes up 5x every 15 years?

Post by Unladen_Swallow » Thu Mar 26, 2020 2:44 pm

livesoft wrote:
Thu Mar 26, 2020 10:34 am
I think you need to do your own analysis.
+1
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Re: stock market goes up 5x every 15 years?

Post by Phineas J. Whoopee » Thu Mar 26, 2020 7:51 pm

Conflating verb tenses can be hazardous to one's wealth.
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Re: stock market goes up 5x every 15 years?

Post by Thesaints » Thu Mar 26, 2020 8:12 pm

On average Denver gets 1.5" of snow every 10 days, all year round.

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Re: stock market goes up 5x every 15 years?

Post by dukeblue219 » Thu Mar 26, 2020 8:14 pm

firebirdparts wrote:
Thu Mar 26, 2020 2:30 pm
the 15th root of 5 is 1.11 or a geometric 11%. I'm too lazy to comment further.

You believe that? A bunch of more famouser people also put out future estimates that were pretty low. Your buddy might be a better estimator than the famous guys are, but it's impossible to say right now.
There *are* references floating around that claim S&P 500 long-term returns average in the 11-12% range. They're wrong for a variety of reasons like cherry picked dates, inflation, the reference itself is old, average vs. geometric, tax and expense drag, etc, but I can see where someone would pick it up and go with it.

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Re: stock market goes up 5x every 15 years?

Post by LFKB » Thu Mar 26, 2020 8:19 pm

From Jan 1 1930 to December 31 2019 the S&P 500 generated a 9.82% compounded annual growth rate

A 9.82% CAGR means your money would be about 4.1x it’s original amount after 15 years

Your friend wasn’t far off (or may have used a separate set of assumptions). These number exclude the impact of inflation.

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Re: stock market goes up 5x every 15 years?

Post by Sconie » Thu Mar 26, 2020 8:21 pm

livesoft wrote:
Thu Mar 26, 2020 10:34 am
I think you need to do your own analysis.
+1
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Re: stock market goes up 5x every 15 years?

Post by Thesaints » Thu Mar 26, 2020 8:23 pm

LFKB wrote:
Thu Mar 26, 2020 8:19 pm
From Jan 1 1930 to December 31 2019 the S&P 500 generated a 9.82% compounded annual growth rate

A 9.82% CAGR means your money would be about 4.1x it’s original amount after 15 years

Your friend wasn’t far off (or may have used a separate set of assumptions). These number exclude the impact of inflation.
The point is not so much whether inflation has been included, or not, but that regardless that piece of information is absolutely useless.

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Re: stock market goes up 5x every 15 years?

Post by fwellimort » Thu Mar 26, 2020 8:25 pm

That someone's friend must be a genius.
Could you introduce him to me.

I work in a firm critical in Wall Street and I can bet you everyone in the company including the CEO would be willing to pay any fees to get such returns in today's market conditions.
This also includes the peers I know working at Jane Street, Citadel, Bloomberg, Goldman Sachs, BlackRock.
And also including a fund manager I know (family member) managing quite a sum of money.

I think it's better you do your own research on this matter.

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