Study: The Rate of Return on Everything, 1870-2015

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KyleAAA
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by KyleAAA » Fri Aug 18, 2017 9:47 am

bigred77 wrote:
Wed Aug 16, 2017 12:38 pm
Considering the difficulty of obtaining global real estate price levels, rent to price ratios, maintenance costs, transaction costs, etc back into the 1800s, I think it's far more likely that their numbers are off. That's my takeaway but I need to better understand their methodology.
Really? We know for a fact that the residential real estate market is HIGHLY inefficient even today and was probably even more so in the past. Has any academic ever seriously proposed otherwise? I see no theoretical basis for assuming this is a data issue and no theoretical basis for applying the efficient market hypothesis to residential real estate. That theory was developed to apply to highly liquid public capital markets, not fragmented, opaque private markets. To the extent technology reduces transaction costs and improves transparency that may change, but most people still buy a home for reasons having nothing to do with money: it just isn't an arms-length financial transaction for most buyers.

Valuethinker
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Valuethinker » Fri Aug 18, 2017 10:24 am

KyleAAA wrote:
Fri Aug 18, 2017 9:47 am
bigred77 wrote:
Wed Aug 16, 2017 12:38 pm
Considering the difficulty of obtaining global real estate price levels, rent to price ratios, maintenance costs, transaction costs, etc back into the 1800s, I think it's far more likely that their numbers are off. That's my takeaway but I need to better understand their methodology.
Really? We know for a fact that the residential real estate market is HIGHLY inefficient even today and was probably even more so in the past. Has any academic ever seriously proposed otherwise? I see no theoretical basis for assuming this is a data issue and no theoretical basis for applying the efficient market hypothesis to residential real estate. That theory was developed to apply to highly liquid public capital markets, not fragmented, opaque private markets. To the extent technology reduces transaction costs and improves transparency that may change, but most people still buy a home for reasons having nothing to do with money: it just isn't an arms-length financial transaction for most buyers.
In the 2 residential markets that I know well, the latter being London UK, the residential market is pretty efficient.

Factors like size, condition, busyness of street, access to good schools, access to good transport, are well priced.

Of course in large postwar subdivisions, this is even more the case, as there were 5-6 main designs, typically, so you know what size you are getting (and unless renovated, what internal fittings).

When you buy, all you can do is trade off your needs against other needs. Maybe schools matter more or less to me than they might to you, for example, depending on your kids' ages etc. On the other hand, my need to be close to public transport may not matter to you.

The markets have high transactions costs and are sticky, but that doesn't mean they are informationally inefficient.

Data on comparable prices etc. are far more available now, actual transaction prices, but 30 years ago in North American cities, MLS was there.

bigred77
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by bigred77 » Fri Aug 18, 2017 11:21 am

KyleAAA wrote:
Fri Aug 18, 2017 9:47 am
bigred77 wrote:
Wed Aug 16, 2017 12:38 pm
Considering the difficulty of obtaining global real estate price levels, rent to price ratios, maintenance costs, transaction costs, etc back into the 1800s, I think it's far more likely that their numbers are off. That's my takeaway but I need to better understand their methodology.
Really? We know for a fact that the residential real estate market is HIGHLY inefficient even today and was probably even more so in the past. Has any academic ever seriously proposed otherwise? I see no theoretical basis for assuming this is a data issue and no theoretical basis for applying the efficient market hypothesis to residential real estate. That theory was developed to apply to highly liquid public capital markets, not fragmented, opaque private markets. To the extent technology reduces transaction costs and improves transparency that may change, but most people still buy a home for reasons having nothing to do with money: it just isn't an arms-length financial transaction for most buyers.
I think I agree with you. Real Estate is less efficient that publicly traded equities, that I for sure agree with. How much? I don't know, but I buy that it's less efficient.

In terms of risk/return I guess I just assume in the aggregate Real Estate would fall somewhere in between stocks and bonds. I would be hard to convince otherwise.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by KyleAAA » Fri Aug 18, 2017 12:56 pm

Valuethinker wrote:
Fri Aug 18, 2017 10:24 am

In the 2 residential markets that I know well, the latter being London UK, the residential market is pretty efficient.
It is inefficient in the sense that it is relatively easy to buy real estate well below its "value." While a given property's value may be fairly efficiently discovered, that means little if I don't actually have to pay fair value.

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Fri Aug 18, 2017 1:26 pm

Nate79 wrote:
Thu Aug 17, 2017 7:02 pm
hoops777 wrote:
Thu Aug 17, 2017 6:25 pm
To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.
How do you know that?
I believe the financial systems are maybe just a bit different.Investment products are maybe just a wee bit different don't you think?The world is just maybe a little different.Apples to oranges.

Well in 1882 the American military did such and such.
Nice,but now in 2017 the military is maybe just a bit different as is the world.
K.I.S.S........so easy to say so difficult to do.

protagonist
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sat Aug 19, 2017 11:27 am

hoops777 wrote:
Fri Aug 18, 2017 1:26 pm

To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.


And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sat Aug 19, 2017 12:43 pm

protagonist wrote:
Sat Aug 19, 2017 11:27 am
hoops777 wrote:
Fri Aug 18, 2017 1:26 pm

To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.


And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.
This is true,which is why I do not really care about using very old financial data to influence investing today.
K.I.S.S........so easy to say so difficult to do.

protagonist
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sat Aug 19, 2017 1:00 pm

hoops777 wrote:
Sat Aug 19, 2017 12:43 pm
protagonist wrote:
Sat Aug 19, 2017 11:27 am
hoops777 wrote:
Fri Aug 18, 2017 1:26 pm

To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.


And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.
This is true,which is why I do not really care about using very old financial data to influence investing today.
I agree completely. But unfortunately, since we don't have any sound scientific theory to rely on either (just a lot of conflicting academic hypotheses that are basically untestable), I do use past financial data to an extent. We all do. For example, I stay invested in the stock market, knowing that it has had a great track record in the past, even though I realize how meaningless that is in the long run. I know it is just a house of cards, but it is at least as good as any other information out there, and we have to choose. I invest like most people here do...I just don't have the faith that others have. By not having too much psychologically invested in the "correctness" of my investment decisions, I am at least somewhat shielded from the psychological impact of things not working out the way I planned. I would argue that makes me happier, since I can take investing seriously and at the same time laugh at myself. How many people could even predict the November 8 election result on November 7, even with all the sophisticated polling techniques? And yet I am supposed to be able to predict what the financial world will look like 30 years into the future during my retirement??
The future is....well....the future.
Last edited by protagonist on Sat Aug 19, 2017 1:08 pm, edited 1 time in total.

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sat Aug 19, 2017 1:05 pm

protagonist wrote:
Sat Aug 19, 2017 1:00 pm
hoops777 wrote:
Sat Aug 19, 2017 12:43 pm
protagonist wrote:
Sat Aug 19, 2017 11:27 am
hoops777 wrote:
Fri Aug 18, 2017 1:26 pm

To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.


And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.
This is true,which is why I do not really care about using very old financial data to influence investing today.
I agree completely. But unfortunately, since we don't have any sound scientific theory to rely on either (just a lot of conflicting academic hypotheses that are basically untestable), I do use past financial data to an extent. We all do. For example, I stay invested in the stock market, knowing that it has had a great track record in the past, even though I realize how meaningless that is in the long run. I know it is just a house of cards, but it is at least as good as any other information out there, and we have to choose. I invest like most people here do...I just don't have the faith that others have. By not having too much psychologically invested in the "correctness" of my investment decisions, I am at least somewhat shielded from the psychological impact of things not working out the way I planned. I would argue that makes me happier, since I can take investing seriously and at the same time laugh at myself. The future is....well....the future.
Totally agree :D
K.I.S.S........so easy to say so difficult to do.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Valuethinker » Sat Aug 19, 2017 5:02 pm

protagonist wrote:
Sat Aug 19, 2017 11:27 am
hoops777 wrote:
Fri Aug 18, 2017 1:26 pm

To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.


And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.
Actually we have a lot of good idea.

Consider demographics. Most of the people under 30 in 1967 in developed countries are alive today (at least half).

Consider first world cities in 1967. They don't look very different today.

For sure there will be big changes that we missed. The internet existed in -1967 but very few would have foreseen its impact. Nuclear power is only modestly more important now than n it was then. Flying cars didn't happen. The ussr fell but Russia and USA are major powers. We didn't colonize space.

There are some very big changes ahead of us, like the demographic turnover of the planet. But we have some pretty good ideas about that.

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SimpleGift
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by SimpleGift » Sat Aug 19, 2017 5:38 pm

protagonist wrote:
Sat Aug 19, 2017 11:27 am
And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.
No doubt the future will not be the same as the present. But we do have some rough outlines of what the future will look like, just based on current demographic trends (which are mostly inescapable at this point, and not likely to change much) and forecasts of economic growth (which are reasonable estimates, but more speculative).

If interested, this report can be good place to start: The World in 2050
Cordially, Todd

MarkRoulo
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by MarkRoulo » Sat Aug 19, 2017 6:07 pm

Watty wrote:
Wed Aug 16, 2017 9:03 am
Simplegift wrote:
Wed Aug 16, 2017 1:05 am
What’s unique about this new paper is that the researchers have assembled total return data on housing (as an investment, including rental income and capital appreciation) for 16 advanced countries over a nearly 150-year period.
I have not read the paper but one thing to remember is that in 1870 the US was more of an agrarian second world country than an advanced industrial country.
Using Wikipedia, in 1870 the US had the 4th highest GDP per capita in the world. It was behind the UK, Netherlands and Belgium, but ahead of every other country in the world. China and India were larger in total GDP, and the US roughly matched the UK.

For the time, the US was quite advanced. Compared to today, the US (about $2,500 per capita in 1990 dollars) as poorer per capita than Mexico (over $7,000 per capita in 1990 dollars). So advanced for its day, but not really even a 2nd world economy today.

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siamond
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by siamond » Sat Aug 19, 2017 8:12 pm

hoops777 wrote:
Thu Aug 17, 2017 6:25 pm
To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.
The world might be quite different, but human nature didn't change much. Read a good book about the history of speculation (like this one), and be amazed by how people keep repeating the very exact same financial mistakes one century or two apart. There is a LOT to learn from financial history, which will, in all likelihood, apply to the future.

protagonist
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sat Aug 19, 2017 8:21 pm

Valuethinker wrote:
Sat Aug 19, 2017 5:02 pm
protagonist wrote:
Sat Aug 19, 2017 11:27 am
hoops777 wrote:
Fri Aug 18, 2017 1:26 pm

To be honest,what happened 100 years ago or even 50 years ago financially is not all that meaningful to the world we live in now,especially as any predictive tool.


And there is a very good chance that the world of 2067 will not be a whole lot like 2017. And we have no clue today as to how it will be different.
Actually we have a lot of good idea.

Consider demographics. Most of the people under 30 in 1967 in developed countries are alive today (at least half).

Consider first world cities in 1967. They don't look very different today.

For sure there will be big changes that we missed. The internet existed in -1967 but very few would have foreseen its impact. Nuclear power is only modestly more important now than n it was then. Flying cars didn't happen. The ussr fell but Russia and USA are major powers. We didn't colonize space.

There are some very big changes ahead of us, like the demographic turnover of the planet. But we have some pretty good ideas about that.

I don't know what that proves.

There have been no major calamities involving the USA or Europe since 1967 to significantly change things. No world wars, no civil war, no serious economic collapse, no major governmental change, no major climate shifts, no use of nuclear weapons. And there also has been no development of cold fusion , planetary colonization, we are still mostly dependent on fossil fuels , health care has improved only incrementally with no huge breakthroughs, humans still work 40 hour weeks, etc etc. Whatever the new "internet economy" has in store for us , and artificial intelligence, social media, etc. is unknown, since they are in their embryonic stages. The post-industrial revolution economic growth has continued in the USA more or less unimpeded. The USA is still the major military and economic world power.

Can you say the same for the next 50 years?

History (and the economy) is driven by major world-changing events. For example, the emergence of the USA as THE major world economic power as a result of the decimation of Europe and Japan by two world wars in the early 20th century. Outside of the big stuff, the rest is mostly noise. When and how they will happen, or their probability, is completely unknown.
Last edited by protagonist on Sat Aug 19, 2017 8:45 pm, edited 1 time in total.

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sat Aug 19, 2017 8:34 pm

I would bet the US will still be the major world power.We are so blessed with our location and natural resources,it creates a huge advantage.
As far as the financial markets are concerned,I have little faith in any predictions made by anyone.
K.I.S.S........so easy to say so difficult to do.

protagonist
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sat Aug 19, 2017 8:47 pm

hoops777 wrote:
Sat Aug 19, 2017 8:34 pm
I would bet the US will still be the major world power.We are so blessed with our location and natural resources,it creates a huge advantage.
As far as the financial markets are concerned,I have little faith in any predictions made by anyone.
Venezuela is blessed with natural resources. So is Nigeria.

Holland and Denmark are not.

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sat Aug 19, 2017 9:19 pm

The huge advantage the US enjoys with its geographic location,amount of rivers and lakes,etc.is well documented.The people of course have to take advantage of it,which we have.No country on earth has the geographical,natural resource and agricultural benefits we enjoy.That will not be changing.
K.I.S.S........so easy to say so difficult to do.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by gkaplan » Sat Aug 19, 2017 9:37 pm

hoops777 wrote:
Sat Aug 19, 2017 9:19 pm
The huge advantage the US enjoys with its geographic location,amount of rivers and lakes,etc.is well documented.The people of course have to take advantage of it,which we have.No country on earth has the geographical,natural resource and agricultural benefits we enjoy.That will not be changing.

Here is the very definition of home bias.
Gordon

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sat Aug 19, 2017 10:11 pm

hoops777 wrote:
Sat Aug 19, 2017 9:19 pm
The huge advantage the US enjoys with its geographic location,amount of rivers and lakes,etc.is well documented.The people of course have to take advantage of it,which we have.No country on earth has the geographical,natural resource and agricultural benefits we enjoy.That will not be changing.
Wow.It is not bias when it is a well documented fact.If I am wrong please enlighten me.The US did not create the inland waterways,climate,soil,harbors,location,etc.That was simply good fortune.It is like a child being born with wonderful parents who also happen to be very well educated,wealthy and connected.The child has many advantages,but still has to perform to be a success individually.
K.I.S.S........so easy to say so difficult to do.

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sat Aug 19, 2017 10:11 pm

hoops777 wrote:
Sat Aug 19, 2017 9:19 pm
The huge advantage the US enjoys with its geographic location,amount of rivers and lakes,etc.is well documented.The people of course have to take advantage of it,which we have.No country on earth has the geographical,natural resource and agricultural benefits we enjoy.That will not be changing.
Wow.It is not bias when it is a well documented fact.If I am wrong please enlighten me.The US did not create the inland waterways,climate,soil,harbors,location,etc.That was simply good fortune.It is like a child being born with wonderful parents who also happen to be very well educated,wealthy and connected.The child has many advantages,but still has to perform to be a success individually.
K.I.S.S........so easy to say so difficult to do.

protagonist
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sat Aug 19, 2017 10:24 pm

hoops777 wrote:
Sat Aug 19, 2017 10:11 pm
hoops777 wrote:
Sat Aug 19, 2017 9:19 pm
The huge advantage the US enjoys with its geographic location,amount of rivers and lakes,etc.is well documented.The people of course have to take advantage of it,which we have.No country on earth has the geographical,natural resource and agricultural benefits we enjoy.That will not be changing.
Wow.It is not bias when it is a well documented fact.If I am wrong please enlighten me.The US did not create the inland waterways,climate,soil,harbors,location,etc.That was simply good fortune.It is like a child being born with wonderful parents who also happen to be very well educated,wealthy and connected.The child has many advantages,but still has to perform to be a success individually.
North American climate is terrible (for the most part freezing winters and very hot summers), and North America is particularly susceptible to natural disasters such as hurricanes, tornadoes, earthquakes, blizzards, etc. Much of North America is desert. In this study we ranked #45 in terms of natural disaster risk, behind essentially all of Europe. https://en.wikipedia.org/wiki/List_of_c ... aster_risk We are far from most of our trading partners- that gives us the advantage of security but not of ease of trade. Do we really have significantly more usable waterways per square mile than the rest of the world? I don't know. The majority of our country is landlocked. I think factors such as education and health of the population play larger roles these days in predicting future prosperity, but I could be wrong.

But anyway, I don't think any of these factors will make a huge dent in the economic status quo. What will is unpredictable world events, whether technological breakthroughs, wars, disasters, political upheavals, climate change, whatever. And what will happen between now and 2067 or 2117 is a total mystery.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by KarenC » Sun Aug 20, 2017 8:34 am

hoops777 wrote:
Sat Aug 19, 2017 9:19 pm
The huge advantage the US enjoys with its geographic location,amount of rivers and lakes,etc.is well documented.The people of course have to take advantage of it,which we have.No country on earth has the geographical,natural resource and agricultural benefits we enjoy.That will not be changing.
FWIW, Wendover Productions has a recent video that’s pertinent: https://youtu.be/e-WO-c9xHms
"How much you know is less important than how clearly you understand where the borders of your ignorance begin." — Jason Zweig

columbia
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by columbia » Sun Aug 20, 2017 8:36 am

How is this relevant for anyone's future?

Johnnie
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Johnnie » Sun Aug 20, 2017 8:48 am

The U.S. has the most stable government in the world, a strong rule of law including property rights and contract protections, a risk-taking entrepreneurial culture, and a regulatory system that puts a comparatively less heavy boot on the neck of economic animal spirits here. Bigness helps too, and having accumulated vast piles of wealth from doing it this way for 200 years.

In short, when investors and entrepreneurs look to the U.S. they think, "Compared to most places, you can make money there, and the government won't drive you nuts if you try - or rob you blind if you succeed."

That's our story, and we're mostly sticking to it even as the narrative gets increasingly frayed, and as smart and hungry newcomers increasingly nip at our heels.

IOW, sustained growth and prosperity are about a lot more than natural resources and convenient waterways, etc. Two words tell the story on that: Hong Kong.

So gee, why am I 40% international? See the "Japan Bubble Burst" thread. <Shrug>

That's why we're talking about this, BTW - it's another "how much international?" thread, as much as a "Real estate? Really?" thread.
"I know nothing."

hoops777
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by hoops777 » Sun Aug 20, 2017 12:12 pm

Johnnie wrote:
Sun Aug 20, 2017 8:48 am
The U.S. has the most stable government in the world, a strong rule of law including property rights and contract protections, a risk-taking entrepreneurial culture, and a regulatory system that puts a comparatively less heavy boot on the neck of economic animal spirits here. Bigness helps too, and having accumulated vast piles of wealth from doing it this way for 200 years.

In short, when investors and entrepreneurs look to the U.S. they think, "Compared to most places, you can make money there, and the government won't drive you nuts if you try - or rob you blind if you succeed."

That's our story, and we're mostly sticking to it even as the narrative gets increasingly frayed, and as smart and hungry newcomers increasingly nip at our heels.

IOW, sustained growth and prosperity are about a lot more than natural resources and convenient waterways, etc. Two words tell the story on that: Hong Kong.

So gee, why am I 40% international? See the "Japan Bubble Burst" thread. <Shrug>

That's why we're talking about this, BTW - it's another "how much international?" thread, as much as a "Real estate? Really?" thread.
I agree with all that you said.Just note that when you add your points AND my points about location,natural resources,agriculture and the fact that North America has almost more inland waterways than the rest of the world COMBINED,you end up with what the US is.You have the parts that were made by the people as well as the good fortune of the geography.A very potent combination.I never meant to say the only reason for our dominance is geographical,but it has played a large roll and will continue.
K.I.S.S........so easy to say so difficult to do.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Johnnie » Sun Aug 20, 2017 7:21 pm

hoops777 wrote:
Sun Aug 20, 2017 12:12 pm
Johnnie wrote:
Sun Aug 20, 2017 8:48 am
The U.S. has the most stable government in the world, a strong rule of law including property rights and contract protections, a risk-taking entrepreneurial culture, and a regulatory system that puts a comparatively less heavy boot on the neck of economic animal spirits here. Bigness helps too, and having accumulated vast piles of wealth from doing it this way for 200 years.

In short, when investors and entrepreneurs look to the U.S. they think, "Compared to most places, you can make money there, and the government won't drive you nuts if you try - or rob you blind if you succeed."

That's our story, and we're mostly sticking to it even as the narrative gets increasingly frayed, and as smart and hungry newcomers increasingly nip at our heels.

IOW, sustained growth and prosperity are about a lot more than natural resources and convenient waterways, etc. Two words tell the story on that: Hong Kong.

So gee, why am I 40% international? See the "Japan Bubble Burst" thread. <Shrug>

That's why we're talking about this, BTW - it's another "how much international?" thread, as much as a "Real estate? Really?" thread.
I agree with all that you said.Just note that when you add your points AND my points about location,natural resources,agriculture and the fact that North America has almost more inland waterways than the rest of the world COMBINED,you end up with what the US is.You have the parts that were made by the people as well as the good fortune of the geography.A very potent combination.I never meant to say the only reason for our dominance is geographical,but it has played a large roll and will continue.
Roger all that. It's good to have a bounteous land. Nice neighbors too, while we're at it. All of which have meaning for the stuff we talk about in a thread called "The worth of everything" on a sophisticated investing site.
"I know nothing."

protagonist
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sun Aug 20, 2017 9:00 pm

I can't argue with the logic of any of what I read above, regarding why the USA will remain pre-eminent and prosperous. All good arguments.

The problem is, however, that there are so many possibilities in the world, that it is easy to come up with a convincing argument to support just about any reasonable future prediction. And we have all read equally good arguments as to why the era of American pre-eminence is growing to a close. Only in retrospect will we be able to accurately tease out the causes of history.

I have no opinion on the subject. Throughout history, powerful nations have all risen and fallen. I doubt that the USA is an exception. The question is whether our time will come in 30 years, or 100, or 500, or ??? and without a crystal ball I have no clue.

Besides which, and much more relevant, the economy is way more global than ever. When the USA sneezed in 2008, the entire world caught a cold. A credit crisis in SE Asia in 1997 caused the US markets to tumble and had a big effect on the subsequent dot-com and housing bubbles in the USA. And commerce is much more global now than in 1997 or 2008. Any future financial crisis is likely to be a global one, regardless of where or why it starts.

I reiterate...there is no sound basis to predict anything about the economy of 2067 based on our paltry 100 or so years of decent data.

Rich Cape Cod
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Rich Cape Cod » Mon Aug 21, 2017 7:10 pm

"You would also need to look at the details of how they measured the housing gains. Very few houses that existed in 1870 ares still around today. Even a 50 year old house that was built in 1967 is likely past its prime."

In my Cape Cod town there are lots of homes, lived in, in great shape and quite valuable, which were built in the 19th Century!!

Rich
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by siamond » Wed Aug 23, 2017 9:06 pm

Simplegift wrote:
Wed Aug 16, 2017 4:36 pm
If interested in more about this research, covering 17 advanced countries from 1870-2015, one can access for free some of the original data sets in Excel format (including housing prices, stock prices, interest rates, inflation rates, real GDP growth and more) — plus read similar papers that have been published in recent years based on these data sets:
For the many do-it-yourself quant types here on the Bogleheads Forum, this is the first time that I’ve seen such a rich global data set available for free. Even the well-known Dimson, Marsh and Staunton global return series, covering stock and bond returns for various countries since 1900, is only available through commercial outlets and the Credit Suisse annual summaries. So these free data sets could be a wonderful resource to explore, if interested.
I started to explore, my first question was to check how the equity returns aligned with the known per-country numbers from MSCI. Unfortunately, I didn't go very far. The downloadable Excel spreadsheet includes a stock price index for each country, so we can easily infer the capital gains, but I cannot find the yield side of things (i.e. dividends). I checked the documentation of the spreadsheet, and no luck. The authors do refer to capital gains + yield computation in their article though (e.g. section 2.3). So it appears that the spreadsheet is incomplete... That is unfortunate. :(

I did check two series (Australia and USA) against MSCI Gross Returns, and sure enough, a few % are missing every year... So I sent a request via the MacroHistory contact e-mail, asking for the missing dividends - will share updates...

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by SimpleGift » Thu Aug 24, 2017 1:18 am

siamond wrote:
Wed Aug 23, 2017 9:06 pm
I did check two series (Australia and USA) against MSCI Gross Returns, and sure enough, a few % are missing every year... So I sent a request via the MacroHistory contact e-mail, asking for the missing dividends - will share updates...
Thank you for taking the initiative to track down the dividend data series. As noted in my initial review of the database upthread, the housing rental income series is also missing — though housing total returns are probably less likely to be useful in Boglehead-type historical analyses, so perhaps not worth trying to obtain.

If successful in obtaining the dividend data, I can envision you being able to create some interesting data series:
  • • Using the GDP data, a global, GDP-weighted, equity total returns series, 1870-2013.

    • Using the CPI data, a global, inflation-adjusted, GDP-weighted, equity total return series, 1870-2013.

    • Real and nominal equity total return series for each of the 17 advanced countries, 1870-2013.
Along with the short and long-term interest rate series (that are useful as is, I believe), you’d have almost a century-and-a-half of global asset returns nearly as comprehensive as the Dimson-Marsh-Staunton database — but freely available for all to use.
Cordially, Todd

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by siamond » Fri Aug 25, 2017 5:00 pm

Ah sorry, didn't see that you had already established that dividends were indeed missing. I did a quick check between the price index values from the database and the MSCI price values (1970+) for the USA, and those aren't exactly the same data series, but they are fairly well aligned, so we have a good sanity check here. I didn't get any response to my query about dividends so far.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by singersargent63 » Tue Sep 05, 2017 3:33 am

Hi all - this is my first post here (and on any forum actually).

The “returns on everything” is a great paper and I hope the authors will continue their research. That said, I have a few comments / issues.

1) The paper uses mainly arithmetic means. This can be problematic. Casual readers may not be aware of the difference to geometric means and may keep figures in their heads that will lead to overly optimistic results when calculating future returns. I found the paper via a newspaper article which of course only used the arithmetic means without any further comment. This is stuff that is read by pension fund board members, for instance.

2) Also, using arithmetic means in the Piketty-inequality-and-wealth-accumulation-discussion feels mathematically wrong to me. It would lead to fundamentally wrong conclusions. For equities, the geometric mean is 2.3% lower. That would explain a lot of the famous “r-g” gap.

Any thoughts on this? Maybe I’m looking at this the wrong way.

3) The return on housing – although low compared to other countries – still feels very high for my place (Switzerland, 6.2%, post 1980). The pieces of information that I have do not reconcile with the stated figure. I could be wrong, but that number looks odd.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by siamond » Tue Sep 05, 2017 8:16 am

siamond wrote:
Fri Aug 25, 2017 5:00 pm
Ah sorry, didn't see that you had already established that dividends were indeed missing. I did a quick check between the price index values from the database and the MSCI price values (1970+) for the USA, and those aren't exactly the same data series, but they are fairly well aligned, so we have a good sanity check here. I didn't get any response to my query about dividends so far.
Still didn't get an answer from them... Will try again.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by siamond » Mon Sep 11, 2017 11:49 am

I finally got an answer from the folks managing the database. Not terribly helpful, but keeping the door open...
The dataset on the website http://www.macrohistory.net/data/ currently does not contain the dividend and housing rent series. These new series will only be incorporated into the JST dataset that is available online at a later stage.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Tyler9000 » Sun Sep 17, 2017 11:26 pm

siamond wrote:
Mon Sep 11, 2017 11:49 am
I finally got an answer from the folks managing the database. Not terribly helpful, but keeping the door open...
The dataset on the website http://www.macrohistory.net/data/ currently does not contain the dividend and housing rent series. These new series will only be incorporated into the JST dataset that is available online at a later stage.
Thanks Siamond. I appreciate you chasing this down.

The data is a lot less interesting without the dividends included. The site is definitely on my bookmark short list, but I guess I'll have to keep an eye out for when they get around to updating it.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by JBTX » Mon Sep 18, 2017 1:24 am

Scanned the first few pages. It'll take some time wading through the 80+ pages, but good stuff.

It sounds like the real estate return included both the appreciation as well as rental activities. I wonder how they account for the personal investment in time within the investment return, if at all?

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“The Rate of Return on Everything”

Post by tanstaafl » Tue Dec 19, 2017 7:20 am

[Merged tanstaafl's post into this existing thread - moderator prudent]

That’s the title of a new NBER by some Fed economists. I’ve only started getting in to it, but I thought many here would appreciate it. Or at least find many things to talk about!

http://papers.nber.org/tmp/80647-w24112.pdf

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by MNS CA » Thu Jan 11, 2018 11:41 pm

Very interesting paper. I'd probably still expect U.S. equities to outpace U.S. real estate.

I'm skeptical of how the study authors compare stocks and real estate.

They assume that the drag on annual returns from transactions costs is significantly higher for stocks than for real estate because of high annual turnover of stocks. But if you buy and hold a broad stock index fund, you can keep turnover minimal.

They assume 7.7% costs of buying or selling real estate and 75bps cost of buying or selling stock, which seems low for real estate and high for stock. They assume a 10 year holding period for real estate, which again seems high.

They also ignore taxes. You can get your tax cost ratio down below property tax rates.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by AlohaJoe » Thu Jan 11, 2018 11:51 pm

MNS CA wrote:
Thu Jan 11, 2018 11:41 pm
But if you buy and hold a broad stock index fund, you can keep turnover minimal.
All of those broad stock index funds that were available in Italy, Portugal, and the Spain from 1870 to 1970....?
They assume 7.7% costs of buying or selling real estate and 75bps cost of buying or selling stock, which seems low for real estate and high for stock. They assume a 10 year holding period for real estate, which again seems high.
They gave their reasoning for all of these choices. Talking about "feelings" doesn't seem like a very useful rebuttal to an academic paper.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by MNS CA » Fri Jan 12, 2018 12:02 am

AlohaJoe wrote:
Thu Jan 11, 2018 11:51 pm
MNS CA wrote:
Thu Jan 11, 2018 11:41 pm
But if you buy and hold a broad stock index fund, you can keep turnover minimal.
All of those broad stock index funds that were available in Italy, Portugal, and the Spain from 1870 to 1970....?
They assume 7.7% costs of buying or selling real estate and 75bps cost of buying or selling stock, which seems low for real estate and high for stock. They assume a 10 year holding period for real estate, which again seems high.
They gave their reasoning for all of these choices. Talking about "feelings" doesn't seem like a very useful rebuttal to an academic paper.
No, those broad stock indexes were not available at the time. But they are today, which means one should assume higher returns for equities going forward, all else being equal. Transactions costs in stock markets have fallen much faster than in real estate.

The authors' reason for a 10 year holding period for real estate is that *current* owners of real estate have been there for 10 years on average. But there are people who *used to* own real estate but don't anymore because they now rent. Those people's real estate holding period should have been counted, and it's probably significantly shorter.

Their reasons for high turnover are based on volume on stock exchanges, which is probably mostly hedge funds and actively managed funds--which we know lag the index.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by WanderingDoc » Fri Jan 12, 2018 5:09 am

SimpleGift wrote:
Wed Aug 16, 2017 1:05 am
Well, not quite everything, but stocks, housing, bonds and bills worldwide. What’s unique about this new paper is that the researchers have assembled total return data on housing (as an investment, including rental income and capital appreciation) for 16 advanced countries over a nearly 150-year period. They have also improved on the existing global return series for stocks, bonds and bills, extending the coverage to more countries and years. A couple of key findings:

1) Residential real estate (as rental investment) actually outperformed global stocks since 1870. Housing beat stocks mainly because returns were less than half as volatile (chart below). Thanks to compounding, this created a performance gap of more than 2% per year. Also, net rental income historically accounted for more than half of the total housing returns. The rental income returns were greater than the stock dividend returns, which explained much of housing’s outperformance over the nearly 150 years.

2) The risk premium of risky asset returns (equity and housing) over safe asset returns (bonds and bills) is generally lower today than historical average. One interesting finding was that when risk premiums are low like today (in red below), financial crises become more likely — due to the mispricing of risk — and vice versa. For example, between 1946 and 1973 when global risk premiums were above 8%, there was not one systematic banking crisis in their entire 16 nation sample.
  • Image
    NOTE: These are real, inflation-adjusted returns and premia.
    Source: Jorda et. al.

DISCUSSION: There's a huge amount of material in this paper, much of it new and not yet peer-reviewed — especially the residential real estate return series. But for enthusiasts of historical asset returns, there’s much to scrutinize and ponder, about the long-term returns on capital, about GDP growth, about risk premiums, and about risky and safe global asset returns over the past 150 years. Comments on this paper?
Great thread, thanks for starting it.

Truth be told, that data doesn't include all the ways real estate pays you. Appreciation. Cash flow. Tax benefits. Depreciation. Forced appreciation/value-add. Principal paydown by tenants. Inflation hedging/profiting.

People try to do an apples-to-apples comparison between equities (which only profit one way, maybe 1.5 ways if you want to consider the puny 1.6% dividend) vs. real estate, conveniently leaving out the other ways we profit from real estate.
Last edited by WanderingDoc on Fri Jan 12, 2018 5:18 am, edited 1 time in total.
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Re: Study: The Rate of Return on Everything, 1870-2015

Post by WanderingDoc » Fri Jan 12, 2018 5:18 am

North Texas Cajun wrote:
Wed Aug 16, 2017 7:21 am
The authors express surprise that equity returns and real estate returns are similar despite equity returns being more volatile.

If I read this correctly, the study used 7.7% as the transaction cost for real estate. The authors used an OECD estimate. I don't know the U.S. compares with the rest of the world. I think 7.7% is much too low for U.S. residential real estate. I think sales commisions alone are today generally 6 to 7 percent. That's not the only costs a seller will incur. The buyer of residential real estate must also pay significant transaction costs, including inspection fees, closing costs, and moving expenses.

If the researchers grossly underestimated buyer and seller transaction costs, then they have overstated real estate returns.

The authors claim that equities are more risky than real estate. Did they correctly assess the relative volatility of the two assets? If they used short term volatility of equity returns but long term volatility of real estate returns, is that really valid.

I also think the illiquidity of real estate investment would cause investors to demand a higher return than otherwise. Certainly equities are much more liquid, and that should bring equity returns down relative to real estate returns. Some of that illiquidity expense is captured in the real estate commissions. But real estate sellers often incur duplicate utilities, duplicate insurance, and other extra expenses while waiting for a home to sell.

I'm not so sure about the author's overall assessment of equities vs real estate returns and risks.
Liquidity is another way of saying "bad tax treatment". I'll pass. I haven't found any asset class with better tax treatment better than real estate. Full stop.

I agree, 8-10% exit cost is more typing for selling. B&H and 1031 exchange is the better strategy. Real estate returns tend to go up the longer you own said real estate, with a large bump up at the mortgage pay off. Still goes up from there, though.
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by KyleAAA » Fri Jan 12, 2018 11:21 am

WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Liquidity is another way of saying "bad tax treatment". I'll pass. I haven't found any asset class with better tax treatment better than real estate. Full stop.
New tax law non-withstanding (I haven't had a chance to dig deeply into its implications for real estate vs pass-through vs C Corps), the tax treatment for real estate hasn't been substantially different than for other assets. For all assets, you pay tax after expenses (including interest, depr, & amort). This is just as true for common stock ownership as it is for real estate. How is the tax treatment of real estate different? Just because the depreciation happens on your income statement rather than the corporation's? The liquidity premium is wholly different from tax treatment.
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Truth be told, that data doesn't include all the ways real estate pays you. Appreciation. Cash flow. Tax benefits. Depreciation. Forced appreciation/value-add. Principal paydown by tenants. Inflation hedging/profiting.
Yes it does. I think you're letting the accounting quirks get in the way of understanding the underlying economics of both types of assets. They are very similar. Do you think corporations can't do all of those things and pass along the benefits to shareholders in a tax-efficient way?

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by Valuethinker » Fri Jan 12, 2018 12:05 pm

protagonist wrote:
Sun Aug 20, 2017 9:00 pm
I can't argue with the logic of any of what I read above, regarding why the USA will remain pre-eminent and prosperous. All good arguments.

The problem is, however, that there are so many possibilities in the world, that it is easy to come up with a convincing argument to support just about any reasonable future prediction. And we have all read equally good arguments as to why the era of American pre-eminence is growing to a close. Only in retrospect will we be able to accurately tease out the causes of history.

I have no opinion on the subject. Throughout history, powerful nations have all risen and fallen. I doubt that the USA is an exception. The question is whether our time will come in 30 years, or 100, or 500, or ??? and without a crystal ball I have no clue.

Besides which, and much more relevant, the economy is way more global than ever.
You'd be surprised to know that it was possibly more globally integrated in 1900 than now. There were significant financial interlinkages (the Barings Crisis, if you google it, was about Argentine bonds). The British Empire covered 40% or so of the inhabited world's surface (we had India as a directly governed colony, as well as Canada, Australia).

And almost all international trade cleared through London-- so an even bigger role for discount bills (which financed trade), and the GBP, than the USD and NYC now.

Financial crashes spread from Wall Street, to London, and then to the world, and vice versa.

It was also easier for (white) people to move internationally in those times. The US for example had no immigration controls (?prohibition on people with certain infectious diseases?). Neither did most of the British white dominions (ie Canada, Australian states, later NZ).
When the USA sneezed in 2008, the entire world caught a cold. A credit crisis in SE Asia in 1997 caused the US markets to tumble and had a big effect on the subsequent dot-com and housing bubbles in the USA. And commerce is much more global now than in 1997 or 2008. Any future financial crisis is likely to be a global one, regardless of where or why it starts.
I agree, and the speed of response is somewhat faster-- it could only move by telegraph and packet steamer in 1900. No equivalent of Twitter.
I reiterate...there is no sound basis to predict anything about the economy of 2067 based on our paltry 100 or so years of decent data.
This, I agree. Although the broad trend would seem to be a restoration of 1700-- that China and India would be 2 of the world's largest powers, if not the largest powers, in terms of population and share of GDP.

The environment under which this is all taking place is not stable.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by WanderingDoc » Fri Jan 12, 2018 1:21 pm

KyleAAA wrote:
Fri Jan 12, 2018 11:21 am
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Liquidity is another way of saying "bad tax treatment". I'll pass. I haven't found any asset class with better tax treatment better than real estate. Full stop.
New tax law non-withstanding (I haven't had a chance to dig deeply into its implications for real estate vs pass-through vs C Corps), the tax treatment for real estate hasn't been substantially different than for other assets. For all assets, you pay tax after expenses (including interest, depr, & amort). This is just as true for common stock ownership as it is for real estate. How is the tax treatment of real estate different? Just because the depreciation happens on your income statement rather than the corporation's? The liquidity premium is wholly different from tax treatment.
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Truth be told, that data doesn't include all the ways real estate pays you. Appreciation. Cash flow. Tax benefits. Depreciation. Forced appreciation/value-add. Principal paydown by tenants. Inflation hedging/profiting.
Yes it does. I think you're letting the accounting quirks get in the way of understanding the underlying economics of both types of assets. They are very similar. Do you think corporations can't do all of those things and pass along the benefits to shareholders in a tax-efficient way?
I honestly don't. The more degrees of freedom between the investment and you, the more people that need to be paid and the more red tape.
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by KyleAAA » Fri Jan 12, 2018 2:54 pm

WanderingDoc wrote:
Fri Jan 12, 2018 1:21 pm
KyleAAA wrote:
Fri Jan 12, 2018 11:21 am
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Liquidity is another way of saying "bad tax treatment". I'll pass. I haven't found any asset class with better tax treatment better than real estate. Full stop.
New tax law non-withstanding (I haven't had a chance to dig deeply into its implications for real estate vs pass-through vs C Corps), the tax treatment for real estate hasn't been substantially different than for other assets. For all assets, you pay tax after expenses (including interest, depr, & amort). This is just as true for common stock ownership as it is for real estate. How is the tax treatment of real estate different? Just because the depreciation happens on your income statement rather than the corporation's? The liquidity premium is wholly different from tax treatment.
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Truth be told, that data doesn't include all the ways real estate pays you. Appreciation. Cash flow. Tax benefits. Depreciation. Forced appreciation/value-add. Principal paydown by tenants. Inflation hedging/profiting.
Yes it does. I think you're letting the accounting quirks get in the way of understanding the underlying economics of both types of assets. They are very similar. Do you think corporations can't do all of those things and pass along the benefits to shareholders in a tax-efficient way?
I honestly don't. The more degrees of freedom between the investment and you, the more people that need to be paid and the more red tape.
So your preference for real estate is due to red tape and not tax efficiency, then? I know nothing about mining, so if I want to own a mining company it makes sense to have people with experience in the industry between the me and the mine. For diversification sake, I want to own companies in every industry. How else to accomplish this except via the public markets? That mining company gets to depreciate its real estate every bit as much as you do directly owning that duplex. My after-tax wealth at the end of the day is similar in both cases.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by siamond » Fri Jan 12, 2018 3:33 pm

Valuethinker wrote:
Fri Jan 12, 2018 12:05 pm
protagonist wrote:
Sun Aug 20, 2017 9:00 pm
I reiterate...there is no sound basis to predict anything about the economy of 2067 based on our paltry 100 or so years of decent data.
This, I agree. Although the broad trend would seem to be a restoration of 1700-- that China and India would be 2 of the world's largest powers, if not the largest powers, in terms of population and share of GDP.

The environment under which this is all taking place is not stable.
What this kind of 'nobody knows nothing' assertion is missing is that the world's economy is driven by human beings (incl. greed, foolishness, gullibility, etc). And the nature of human beings really does NOT change much over time, or at least not in a century or two. The Edward Chancellor's masterpiece (Devil Take the Hindmost) is a remarkable demonstration of such -stable- fact of life.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by WanderingDoc » Fri Jan 12, 2018 5:04 pm

KyleAAA wrote:
Fri Jan 12, 2018 2:54 pm
WanderingDoc wrote:
Fri Jan 12, 2018 1:21 pm
KyleAAA wrote:
Fri Jan 12, 2018 11:21 am
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Liquidity is another way of saying "bad tax treatment". I'll pass. I haven't found any asset class with better tax treatment better than real estate. Full stop.
New tax law non-withstanding (I haven't had a chance to dig deeply into its implications for real estate vs pass-through vs C Corps), the tax treatment for real estate hasn't been substantially different than for other assets. For all assets, you pay tax after expenses (including interest, depr, & amort). This is just as true for common stock ownership as it is for real estate. How is the tax treatment of real estate different? Just because the depreciation happens on your income statement rather than the corporation's? The liquidity premium is wholly different from tax treatment.
WanderingDoc wrote:
Fri Jan 12, 2018 5:18 am
Truth be told, that data doesn't include all the ways real estate pays you. Appreciation. Cash flow. Tax benefits. Depreciation. Forced appreciation/value-add. Principal paydown by tenants. Inflation hedging/profiting.
Yes it does. I think you're letting the accounting quirks get in the way of understanding the underlying economics of both types of assets. They are very similar. Do you think corporations can't do all of those things and pass along the benefits to shareholders in a tax-efficient way?
I honestly don't. The more degrees of freedom between the investment and you, the more people that need to be paid and the more red tape.
So your preference for real estate is due to red tape and not tax efficiency, then? I know nothing about mining, so if I want to own a mining company it makes sense to have people with experience in the industry between the me and the mine. For diversification sake, I want to own companies in every industry. How else to accomplish this except via the public markets? That mining company gets to depreciate its real estate every bit as much as you do directly owning that duplex. My after-tax wealth at the end of the day is similar in both cases.
My preference to real estate are two-fold: cash flow and tax efficiency.

Most of my deals cash flow 15-35% annualized. ie. $30K down payment, $10K net annual cash flow. Also, having zero money in the deal, with a $6-8K per year cash flow.

As for tax efficiency, I legally pay zero tax on most of my properties, while getting a healthy return on capital.

Investing in a company with real estate experience (ie. REIT) gives you a measly 5-7% return. I won't even consider a deal if it doesn't produce a minimum 20% IRR. So no, I definitely don't want to 'leave it to the experienced ones' :wink: :beer
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by golfCaddy » Fri Jan 12, 2018 10:04 pm

Has anyone been able to square this with Shiller? The paper has a real rate of return of 8% for housing in the US, and, at least globally, shows about half the return to housing from property appreciation. I thought Shiller showed housing had a long run appreciation of close to 0% real and this paper seems to imply it would be closer to 4% real.

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Re: Study: The Rate of Return on Everything, 1870-2015

Post by protagonist » Sun Jan 14, 2018 3:46 pm

Valuethinker wrote:
Fri Jan 12, 2018 12:05 pm
protagonist wrote:
Sun Aug 20, 2017 9:00 pm
I can't argue with the logic of any of what I read above, regarding why the USA will remain pre-eminent and prosperous. All good arguments.

The problem is, however, that there are so many possibilities in the world, that it is easy to come up with a convincing argument to support just about any reasonable future prediction. And we have all read equally good arguments as to why the era of American pre-eminence is growing to a close. Only in retrospect will we be able to accurately tease out the causes of history.

I have no opinion on the subject. Throughout history, powerful nations have all risen and fallen. I doubt that the USA is an exception. The question is whether our time will come in 30 years, or 100, or 500, or ??? and without a crystal ball I have no clue.

Besides which, and much more relevant, the economy is way more global than ever.
You'd be surprised to know that it was possibly more globally integrated in 1900 than now. There were significant financial interlinkages (the Barings Crisis, if you google it, was about Argentine bonds). The British Empire covered 40% or so of the inhabited world's surface (we had India as a directly governed colony, as well as Canada, Australia).

And almost all international trade cleared through London-- so an even bigger role for discount bills (which financed trade), and the GBP, than the USD and NYC now.

Financial crashes spread from Wall Street, to London, and then to the world, and vice versa.

It was also easier for (white) people to move internationally in those times. The US for example had no immigration controls (?prohibition on people with certain infectious diseases?). Neither did most of the British white dominions (ie Canada, Australian states, later NZ).
When the USA sneezed in 2008, the entire world caught a cold. A credit crisis in SE Asia in 1997 caused the US markets to tumble and had a big effect on the subsequent dot-com and housing bubbles in the USA. And commerce is much more global now than in 1997 or 2008. Any future financial crisis is likely to be a global one, regardless of where or why it starts.
I agree, and the speed of response is somewhat faster-- it could only move by telegraph and packet steamer in 1900. No equivalent of Twitter.
I reiterate...there is no sound basis to predict anything about the economy of 2067 based on our paltry 100 or so years of decent data.
This, I agree. Although the broad trend would seem to be a restoration of 1700-- that China and India would be 2 of the world's largest powers, if not the largest powers, in terms of population and share of GDP.

The environment under which this is all taking place is not stable.
Thanks for the interesting perspective on the 1900 global economy. Fascinating.

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