# Do stocks always become profitable, eventually?



## james4beach (Nov 15, 2012)

We're often told that if we just hold stock indices long enough, we're guaranteed to make money. Usually for proof we're pointed to the S&P 500. I've taken issue with this for a long time. The USA is held up as the example of guaranteed long term stock returns but it's also the country that went through the greatest economic expansion in world history, in a triumphant rise to dominate the world.

Here I'll show a couple counter examples using some index ETFs that have quite a long history. And my question is: why are we so sure that Canada will perform like the USA, and not like one of these others?

Going back to 1996, or 20 years, and before the recent market crashes:

EWU - UK index ETF
10 year annualized total return: 1.43%
20 year return: 5.01% (note: this is less than the fixed income return for the same period)

EWJ - Japan index ETF
10 year return: 0.43%
20 year return: 0.02%

And not quite as old, but we have XIN - iShares Canada MSCI EAFE
10 year return: 0.62%
15.5 year return: 2.16%

The above stock returns are *pitiful*. Buying the stock index did not give a profit for 10 years *or even 20 years*. All of these are inferior to the return in fixed income / bonds / GICs, and sometimes even worse than cash!

So why am I supposed to believe that buying the TSX, or S&P 500, is going to be profitable (and better than GICs) over 10 or 20 years?


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## dogcom (May 23, 2009)

With where the world is today anything is possible. I suppose it would be important to keep up the yield component in dividend ETF's in case we do get a very long stretch of poor performance in stocks. Bonds I would want to be in shorter duration ETF's until interest rates go up to a more normal level as in the past.


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## lonewolf (Jun 12, 2012)

We have a limited supply of everything on earth that would include a limited supply of rising stock prices.


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## 0xCC (Jan 5, 2012)

Is comparing fixed income rates from one country vs. stock returns from other countries doing an apples to oranges comparison?

It isn't clear where you are getting the fixed income values you are comparing against so it isn't clear if the comparison is actually apples to apples.


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## hboy43 (May 10, 2009)

Well you are right, there is no reason to think that stocks in the future won't make a 20 year round trip from x to x points over a period of decades.

The error in your thinking is assuming that your personal return will also follow that path. It might if you are unable to see things differently.

You have often pointed out the TSX has been flat the last 10 years or so. I have often countered with yabut my return had been splendid over that interval. You might want to explore what I do just in case it isn't merely luck.

I have often admitted to having 5 bankruptcies in my investing history. So if one wants to claim that I do well because I am lucky, I think they start from a pretty weak spot here, no?

Another point I often make is that at the level of the individual transaction, I am only profitable about 60% of the time. Again, if one wants to argue lucky, well this weakens the argument severely I think.

So I challenge you to delve into how someone so unlucky, and such a poor investor that he only gets it right 60% of the time, is the same guy that had a 9% PA average return over 15 years.

Hint: processes at the macro level can be deterministic even though at the micro level are based on many luck based tiny steps. If you can take the ideas of quantum mechanics and place them into the investing sphere, then maybe you can see how stocks might work out long term for a particular investor even if any particular index is flat for a very long time.

You and I are trained as engineers. I have no doubt that you are now and will always be a better engineer than me. The thing is, over the years I have come to realise that the real value in my training isn't that I can use calculus to determine the volume of a cone, because frankly I can't any more, but rather the big ideas that I was introduced to. The above is one of those big ideas.


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## Pluto (Sep 12, 2013)

james4beach said:


> We're often told that if we just hold stock indices long enough, we're guaranteed to make money. Usually for proof we're pointed to the S&P 500. I've taken issue with this for a long time. The USA is held up as the example of guaranteed long term stock returns but it's also the country that went through the greatest economic expansion in world history, in a triumphant rise to dominate the world.
> 
> Here I'll show a couple counter examples using some index ETFs that have quite a long history. And my question is: why are we so sure that Canada will perform like the USA, and not like one of these others?
> 
> ...


You have a point there. I'm assuming you left out the S&P 500 for a reason. My plan is to buy dividend paying stocks during times of pessimism. Buy mostly Canadian. And if I sell, sell over valued stocks during times of optimism or euphoria. I generally stay away from mutual funds and etf's. That means I focus on CDN banks, pipelines and a couple of telecoms. I think if you did a 10 and 20 year back check on those you'd get a different picture. 5 banks, enb and trp, T, and bce. include dividends. Your performance would be fine. You don't like the banks? Just pipelines and telecoms then. Banks, pipelines, and telecoms always have customers and they all pay dividends. Use the dividends to buy your bonds and cash instruments.


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## CalgaryPotato (Mar 7, 2015)

No, there is guarantee that stocks are profitable long term. However if growth recedes the stock market will not be the biggest economic worry globally.

Also it's really easy to pick on stocks when they are down, and find time periods where the growth is poor. And you're comparing with bonds which have dropped from record highs 20 years ago to record lows right now. You won't duplicate that over the next 20 years.

Find me some investment vehicle guaranteed to return better than inflation over any time period, and I'll put all of my money into it. Until then I've got to rely on a diversified portfolio and keep my expenses low.


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## lonewolf (Jun 12, 2012)

hboy43 said:


> Hint: processes at the macro level can be deterministic even though at the micro level are based on many luck based tiny steps. If you can take the ideas of quantum mechanics and place them into the investing sphere, then maybe you can see how stocks might work out long term for a particular investor even if any particular index is flat for a very long time.
> 
> You and I are trained as engineers. I have no doubt that you are now and will always be a better engineer than me. The thing is, over the years I have come to realise that the real value in my training isn't that I can use calculus to determine the volume of a cone, because frankly I can't any more, but rather the big ideas that I was introduced to. The above is one of those big ideas.


 A few years back I listened to an interview of the great legendary cycles master PQ Wall. He needed to find out info regarding quantum physics for his cycles work. PQ Wall stated in the interview only one person in the world he knew of was capable of helping him because no one else truly understood quantum physics (yet they teach it universities)

Regarding the math I don't think most players are taking it far enough. Need to go past New tons law of an object staying in motion to that of sin & cosine of cycles.


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## Ben1491 (Jan 13, 2012)

Pluto said:


> You have a point there. I'm assuming you left out the S&P 500 for a reason. My plan is to buy dividend paying stocks during times of pessimism. Buy mostly Canadian. And if I sell, sell over valued stocks during times of optimism or euphoria. I generally stay away from mutual funds and etf's. That means I focus on CDN banks, pipelines and a couple of telecoms. I think if you did a 10 and 20 year back check on those you'd get a different picture. 5 banks, enb and trp, T, and bce. include dividends. Your performance would be fine. You don't like the banks? Just pipelines and telecoms then. Banks, pipelines, and telecoms always have customers and they all pay dividends. Use the dividends to buy your bonds and cash instruments.


1+


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## Underworld (Aug 26, 2009)

I think my brain right now is biased towards investing over speculation. I think of investments as a goose that lays golden eggs. How much would would I pay for a goose that laid a golden egg every month forever? A crap load of money!
Less so if I can't give the goose to my children and their children. I never want to buy geese that don't lay golden eggs.


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## tygrus (Mar 13, 2012)

The only true way to guarantee a return in the market is to buy dividend stocks that pay monthly preferably in the 5% range and let them drip. The discounts you get by dripping and the forced compounding will ensure you outstrip the returns on the index.

http://www.dividend-calculator.com/monthly.php


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## treva84 (Dec 9, 2014)

james4beach said:


> We're often told that if we just hold stock indices long enough, we're guaranteed to make money. Usually for proof we're pointed to the S&P 500. I've taken issue with this for a long time. The USA is held up as the example of guaranteed long term stock returns but it's also the country that went through the greatest economic expansion in world history, in a triumphant rise to dominate the world.
> 
> Here I'll show a couple counter examples using some index ETFs that have quite a long history. And my question is: why are we so sure that Canada will perform like the USA, and not like one of these others?
> 
> ...


Do your numbers include re-invested dividends?

Also I would suggest you read stocks for the long run by Jeremy Siegel. While many of the points you are raising are valid, this book will go a long way to answering your questions.


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## james4beach (Nov 15, 2012)

Good points raised so far and I'm open minded. I genuinely wonder what level of confidence I can have that the TSX will perform well over 20+ years.



treva84 said:


> Do your numbers include re-invested dividends?


Yes my numbers include re-invested dividends. These are total returns I pulled straight from iShares, and their chart notes that "chart reflects a hypothetical $10,000 investment and assumes reinvestment of dividends and capital gains". You can also see this source, which describes


> The instructions to form N-1A require Funds to compute Total Return assuming the initial investment is made at the net asset value at the beginning of the period, distributions are reinvested at the net asset value on the ex-dividend date, and all shares are redeemed at net asset value on the last business day of the period.


Because I'm looking at a total return picture, dividend yield doesn't make any difference, nor does it save the day. These number show it; total XIN return over 15 years is 2.16% despite its dividends and reinvestment.



0xCC said:


> Is comparing fixed income rates from one country vs. stock returns from other countries doing an apples to oranges comparison?


That's a valid point. Perhaps the 20 year UK stock return (5.01%) is competitive vs UK fixed income returns. I compared to US/Canada returns, which isn't fair.

Maybe the only real answer is geographic diversification. For the sake of illustration, I pulled some of the worst performing big markets here. Others performed much better. Maybe you just need enough geographic diversification to be assured that your heaviest weights _don't_ turn out to be the next Japan or Europe.

But I suspect that's tough, as most of us are heaviest in Canada & US and other well performing stock markets (like Australia) always end up with smaller weightings.


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## doctrine (Sep 30, 2011)

You can find a 20 year period when even the almighty S&P 500 had basically zero real return and everything else outperformed including probably buying hockey cards. The next 10 years though, were pretty epic when mean reversion occurred.


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## gibor365 (Apr 1, 2011)

> he above stock returns are pitiful. Buying the stock index did not give a profit for 10 years or even 20 years. All of these are inferior to the return in fixed income / bonds / GICs, and sometimes even worse than cash!
> 
> So why am I supposed to believe that buying the TSX, or S&P 500, is going to be profitable (and better than GICs) over 10 or 20 years?


james, this is exactly why we hold at least 45% of total money we have , in GIC/HISA 

You selected "hard" 10 years timeframe, check 10 years rolling 10 or 20 years return... ex. 1995-2015, 1994-2014 etc...
Also check returns of famous dividend champions during this period like MCD, PG, JNJ, KMB ... imho, returns will be much better....

On TSX we have the only one true champion FTS, check it comparing to TSX


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## GoldStone (Mar 6, 2011)

http://www.ndir.com/cgi-bin/downside_adv.cgi

*Portfolio*

TSX Composite: 33%
S&P500: 33%
MSCI EAFE: 33%
3-month Canadian T-bills: 1% (just to round things up to 100%)

*Geometric returns in CAD*

10 years (2006-2015): *6.6%*
20 years (1996-2015): *7.2%*
30 years (1986-2015): *9.0%*
40 years (1976-2015): *11.3%*

Side note to J4B: do not cherry-pick individual countries if you want to be taken seriously.


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## lonewolf (Jun 12, 2012)

I say yes to cherry pick. Data mine & cherry pick the best method to play based on statistics, math & numbers. There can only be one best of anything I will cherry pick the best & leave the rest.

Weather scientist chase tornadoes to study weather. Tornadoes are not normal everyday weather happen less often then bright sunny days. scientist often cherry pic extreme to study.


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## MrMatt (Dec 21, 2011)

james4beach said:


> We're often told that if we just hold stock indices long enough, we're guaranteed to make money. Usually for proof we're pointed to the S&P 500. I've taken issue with this for a long time. The USA is held up as the example of guaranteed long term stock returns but it's also the country that went through the greatest economic expansion in world history, in a triumphant rise to dominate the world.
> 
> Here I'll show a couple counter examples using some index ETFs that have quite a long history. And my question is: why are we so sure that Canada will perform like the USA, and not like one of these others?
> 
> ...


"supposed to believe"?
Backtesting suggests a diversified portfolio, regularly rebalanced outperforms.

Personally I think indexing makes sense, but buying profitable companies makes even more sense.


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## gibor365 (Apr 1, 2011)

MrMatt said:


> "supposed to believe"?
> Backtesting suggests a diversified portfolio, regularly rebalanced outperforms.
> 
> Personally I think indexing makes sense, but buying profitable companies makes even more sense.


simple BTSX portfolio beat index 75% in 25 years


> Over 25 years, the 10-stock "BTSX" portfolio has outperformed the comparison index 18 times, under performed six times and tied once. The average annual total return versus the average annual return of the Total Return index (using the appropriate comparison index for each period) is shown below.





> When the reinvested dividends are included, for the 25 years the BTSX $1000 has increased to $12,064 while the index $1000 has increased to $7,051, an advantage for BTSX of +71.1%.


http://www.finiki.org/wiki/Beating_the_TSX


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Maybe the only real answer is geographic diversification. For the sake of illustration, I pulled some of the worst performing big markets here. Others performed much better. Maybe you just need enough geographic diversification to be assured that your heaviest weights _don't_ turn out to be the next Japan or Europe ...


Since you are comparing to Europe versus North America ... what would you expect the impact of countries like Sweden, Finland, Italy, Germany and Sweden requiring employers provide 20 to 28 vacation days to employees where the USA requires 0 (employers seem to start at ten then require twenty years to hit Europe's 20)?

It would seem to cut into potential profits to have to back filling for twice or more of what NA does.


Cheers


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## andrewf (Mar 1, 2010)

james4beach said:


> We're often told that if we just hold stock indices long enough, we're guaranteed to make money. Usually for proof we're pointed to the S&P 500. I've taken issue with this for a long time. The USA is held up as the example of guaranteed long term stock returns but it's also the country that went through the greatest economic expansion in world history, in a triumphant rise to dominate the world.
> 
> Here I'll show a couple counter examples using some index ETFs that have quite a long history. And my question is: why are we so sure that Canada will perform like the USA, and not like one of these others?
> 
> ...


You are very unlikely to get 5% returns from bonds over the next 20 years with yields where they are now. It is virtually assured.


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## james4beach (Nov 15, 2012)

andrewf said:


> You are very unlikely to get 5% returns from bonds over the next 20 years with yields where they are now. It is virtually assured.


Do you mean by this comment and that even if the "worst case" stock return is 5% that this is still better than bonds? My counter-argument is that in an environment where bonds return less, stocks may also return less. (Example: Japan and ZIRP. Zero interest rates, like we have now, are indicative of a systemic problem and broken economy. Thus, Japan had zero stock returns, and I fear US & friends will too)

About the cherry picking criticism. The general assumption everyone seems to make is that US & western (associated) economies will perform similarly to their history -- *that* is cherry picking too. Studies on SWR are cherry picking the best market in modern history (USA).

But, we don't know how western markets will perform. I'm raising the possibility that western markets do not perform at all like their history, during the rise of the US/Canada/Europe. Instead they could perform for a long period like Japan or UK with far less returns than everyone expects.


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## james4beach (Nov 15, 2012)

CalgaryPotato said:


> Also it's really easy to pick on stocks when they are down


Stocks are virtually at all time highs today!! If you think these stock markets are down, you've got to look at some long term charts. EWJ is within earshot of its all time high. XIN is only 15% below its all time high. EWU is up more than 100% from its bear market low.

The fact the long term performances are so poor, while stocks are near their highs, should be even more worrying. This is the best return you're getting for some of these countries, and even the best return is pitiful.


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## GoldStone (Mar 6, 2011)

james4beach said:


> About the cherry picking criticism. The general assumption everyone seems to make is that US & western (associated) economies will perform similarly to their history -- *that* is cherry picking too.


General assumption? Everyone?




james4beach said:


> Studies on SWR are cherry picking the best market in modern history (USA).


This is false. Modern SWR studies use realistic rates of return that are much lower than historic US returns. We have discussed this at length in many CMF threads.




james4beach said:


> But, we don't know how western markets will perform. I'm raising the possibility that western markets do not perform at all like their history, during the rise of the US/Canada/Europe. Instead they could perform for a long period like Japan or UK with far less returns than everyone expects.


Everyone?

You are not saying anything new here. Future returns of the broad equity markets are expected to be lower than past returns. This is consensus by now. If you want to sound sensational and contrarian, try to argue the opposite point.


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## lonewolf (Jun 12, 2012)

Eclectic12 said:


> Since you are comparing to Europe versus North America ... what would you expect the impact of countries like Sweden, Finland, Italy, Germany and Sweden requiring employers provide 20 to 28 vacation days to employees where the USA requires 0 (employers seem to start at ten then require twenty years to hit Europe's 20)?
> 
> It would seem to cut into potential profits to have to back filling for twice or more of what NA does.
> 
> ...


 Teachers get something like 20 sick days a year can bank the sick days then take @ retirement plus their holiday pay. All the stat holiday pay workers get for doing nothing. I think it was Detroit for every policeman the city was paying for 3 workers with the numbers getting worse as baby boomers age one was working for 2 retired. The private sector is being killed by taxes to support the public sector. Companies in NA are paying a lot of vacation pay it might not be called vacation pay it is still pay for no work. The piper has to be paid. When the government gives away money for no work someone has to pay.


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## agent99 (Sep 11, 2013)

james4beach said:


> So why am I supposed to believe that buying the TSX, or S&P 500, is going to be profitable (and better than GICs) over 10 or 20 years?


Eventually = 10 or 20 years or ????

I think that what you are showing, is that if you buy an index ETF, your return will just be the average of the good and the bad in the index chosen. Investors should try and do better than "average".


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## Eclectic12 (Oct 20, 2010)

lonewolf said:


> Teachers get something like 20 sick days a year can bank the sick days then take @ retirement plus their holiday pay.


Which for those school boards that have it (the one I went to high school at eliminated the "take a retirement" twenty years ago) - that will certainly have passed on costs to the stock companies.

This does not change the higher cost that the example European gov'ts have mandated *all* employers provide (gov't or private). Like their NA counterparts, the European private companies will also have to chip in for whatever bump ups the European gov't gives their workers.




lonewolf said:


> ... All the stat holiday pay workers get for doing nothing ...


Which is a cost that both NA and European employers (with a few exceptions) have, in what seemed to be roughly the same levels so I did not include it as a possible difference in stock market performance.

Interestingly ... the USA has zero paid public holidays.




lonewolf said:


> ... I think it was Detroit for every policeman the city was paying for 3 workers with the numbers getting worse as baby boomers age one was working for 2 retired. The private sector is being killed by taxes to support the public sector.


It makes one wonder how the public companies have been able to bear the costs yet perform so much better than their European counterparts. Based on the OP's numbers.


Cheers


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## none (Jan 15, 2013)

agent99 said:


> Eventually = 10 or 20 years or ????
> 
> I think that what you are showing, is that if you buy an index ETF, your return will just be the average of the good and the bad in the index chosen. Investors should try and do better than "average".


You do MUCH better than average by doing average every single year.


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## RBull (Jan 20, 2013)

agent99 said:


> Eventually = 10 or 20 years or ????
> 
> I think that what you are showing, is that if you buy an index ETF, your return will just be the average of the good and the bad in the index chosen. Investors should try and do better than "average".


This seems to be wrong thinking.

If you buy an index your return will match the index less small management fees. This index average will exceed the average for most investors. In fact this "average" will exceed 80% of investors that are trying to beat the index. Therefore you are above average by simply buying the index. 

This is a common mistake many people make thinking that settling for the index average is bad and that they should and can beat it. Most can't, including professionals.


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## Pluto (Sep 12, 2013)

james4beach said:


> Stocks are virtually at all time highs today!! If you think these stock markets are down, you've got to look at some long term charts. EWJ is within earshot of its all time high. XIN is only 15% below its all time high. EWU is up more than 100% from its bear market low.
> 
> The fact the long term performances are so poor, while stocks are near their highs, should be even more worrying. This is the best return you're getting for some of these countries, and even the best return is pitiful.


James, "the market", for example the TSX is loaded with cyclical resource stocks that is a millstone around its neck. Take the cyclicals out and see what you get. for example, RY, the one you are shorting. 20 years up to 2015 gives 12.87% compounded annual return not including dividends. I wonder what it would be with dividends reinvested. Somewhere close to what Buffett managed, I expect. You worry too much. Buy CDN banks, pipelines, and telecoms. reinvest the dividends. then when you are old enough to retire, stop reinvesting the dividends and live off them.

For myself I'd never buy the tsx. It is a foolish practice due to cyclicals in it. Buying the TSX index is for people who don't know what they are doing. Doesn't mean I'd never buy a cyclical it just means the cyclicals are trades: - Buy low, sell high; buy on bad news, sell; on good news.


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## agent99 (Sep 11, 2013)

RBull said:


> This seems to be wrong thinking.
> 
> If you buy an index your return will match the index less small management fees. This index average will exceed the average for most investors. In fact this "average" will exceed 80% of investors that are trying to beat the index. Therefore you are above average by simply buying the index.
> 
> This is a common mistake many people make thinking that settling for the index average is bad and that they should and can beat it. Most can't, including professionals.


How did you get that information? (index beats 80%; Common mistake). Do you have any data to back that up? I think J4B posted just how poorly the index etfs have performed. Not good enough.

Pluto said it, not me, but he is probably right "For myself I'd never buy the tsx. It is a foolish practice due to cyclicals in it. Buying the TSX index is for people who don't know what they are doing."

Better to proactively adjust allocation between sectors as well as between equity and FI.


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## none (Jan 15, 2013)

There is a ton of literature showing this. Google around but here's one to start:

http://www.smh.com.au/business/markets/index-funds-beat-active-funds-hands-down-20141008-10rvsk.html


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## agent99 (Sep 11, 2013)

none said:


> There is a ton of literature showing this. Google around but here's one to start:
> 
> http://www.smh.com.au/business/markets/index-funds-beat-active-funds-hands-down-20141008-10rvsk.html


Australian link??? They are talking about actively managed FUNDS. If fund has a 2% MER, no wonder it does not beat index. But if you do your own trading, costs are likely as low or lower than ETFs.

Mind you, I don't know why James cherry picked those particular funds (in post #1). Why not XIC/XIU for Canada for example? Those have done something like 6-7% Total Return since 2001 (15 years). For an overall portfolio, there should be a fixed income component and we should then compare with a balanced portfolio. Low interest rates have reduced the return of FI funds, in return for less risk. Total Return of say 5% with 50/50 mix? Not so bad, I guess, if you don't want to bother with DIY approach. But not for me. Don't own any ETFs.


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## bgc_fan (Apr 5, 2009)

agent99 said:


> Australian link??? They are talking about actively managed FUNDS. If dund has a 2% MER, no wonder it does not beat index. But if you do your own trading, costs are likely as low or lower than ETFs.


I'm not sure what kind of comparison you would require. I doubt very much that we can do a study on people handling their own stock portfolio and finding out their returns. The best comparison is to compare with active funds. As an example, here's a Globe and Mail link to relative returns which point out that index ETFs will outform the majority of active ETFs.


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## none (Jan 15, 2013)

agent99 said:


> Australian link??? They are talking about actively managed FUNDS. If dund has a 2% MER, no wonder it does not beat index. But if you do your own trading, costs are likely as low or lower than ETFs.
> 
> M.



Here's a US example if you'd like.
https://personal.vanguard.com/pdf/s296.pdf

I see your point - the question is what is the MER of an average actively managed fund that matches the index. I'm not sure if I've ever seen that number anywhere but it would be fairly easy to calculate. What is the MER on a fund to beat the index 50% of the time.


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## agent99 (Sep 11, 2013)

bgc_fan said:


> As an example, here's a Globe and Mail link to relative returns which point out that index ETFs will outform the majority of active ETFs.


That link refers is again comparing high MER mutual funds with index performance. I don't think it a surprise to anyone that very few can overcome their MER loadings.


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## Moneytoo (Mar 26, 2014)

> On the other hand, stocks remain attractive compared to fixed income. The MSCI All-Country World Index yields about 2.7 per cent, compared to a yield of about 1.7 per on U.S. 10-year treasuries.


Buy the next dip, says Citibank



> Europe is also in an earlier phase of economic recovery, which bodes well for profit growth, which corporate America is struggling to generate.
> 
> As a result, HSBC shifted its reduced U.S. equity exposure to Europe and recommended an overweight position in euro zone stocks.
> 
> That list of preferences for stock investors also includes Canada, emerging markets, and Asia, excluding Japan.


Major global bank urges investors to lighten up on U.S. stocks

What's a girl to do? lol


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## Eder (Feb 16, 2011)

RBull said:


> This is a common mistake many people make thinking that settling for the index average is bad and that they should and can beat it. Most can't, including professionals.


For every dollar spent on equities exactly half of them beat the average....so it's about 50-50.


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## RBull (Jan 20, 2013)

agent99 said:


> How did you get that information? (index beats 80%; Common mistake). Do you have any data to back that up? I think J4B posted just how poorly the index etfs have performed. Not good enough.
> 
> Pluto said it, not me, but he is probably right "For myself I'd never buy the tsx. It is a foolish practice due to cyclicals in it. Buying the TSX index is for people who don't know what they are doing."
> 
> Better to proactively adjust allocation between sectors as well as between equity and FI.


I got that information from doing much reading about investing. There is empirical data to back it up. These are some places to start: 

http://canadiancouchpotato.com/couch-potato-faq/

https://www.ifa.com/12steps/step2/

If you do some searching you will find plenty of sources for information from people like these....to name a few. 

Burton Malkeil
Larry Swedroe
Andrew Hallam


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## RBull (Jan 20, 2013)

Eder said:


> For every dollar spent on equities exactly half of them beat the average....so it's about 50-50.


You misunderstand the point. We are speaking of investors/fund managers not dollars. 

If you take the time to do the research you'll understand. The globe&mail link is a simple way to start.


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## agent99 (Sep 11, 2013)

RBull said:


> I got that information from doing much reading about investing. There is empirical data to back it up. These are some places to start:
> 
> http://canadiancouchpotato.com/couch-potato-faq/
> 
> https://www.ifa.com/12steps/step2/


I will definitely look at Couch Potato and etfs when I get to old to think for myself. 



> The globe&mail link is a simple way to start.


 See post #36


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## none (Jan 15, 2013)

agent99 said:


> I will definitely look at Couch Potato and etfs when I get to old to think for myself.


*too


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## humble_pie (Jun 7, 2009)

RBull said:


> If you buy an index your return will match the index less small management fees. This index average will exceed the average for most investors. In fact this "average" will exceed 80% of investors that are trying to beat the index. Therefore you are above average by simply buying the index.



how so, the index "average" will exceed 80% of investors? 

i am puzzled. Surely an index average can be bested by roughly 50% of market participants & worsted by the other 50%? isn't that what an average means to a lay person?

the disciples of couch always repeat how a stock-picking investor is going to lose, lose, lose, lose. They ignore how half the market will do better than the average.

we don't teach our children to avoid exams because they might not score As. We don't teach them never to compete in sports because they might lose. Why should anyone preach this in investment 101?


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## lonewolf (Jun 12, 2012)

About a year ago I listened to an interview on financial survival network of a guy talking about a school team (cant remember the sport) that always won. All the schools the winning team competed against refused to play the team that worked hard & practiced so they were able to win. The reason being it was to humiliating for the kids that would lose. The team that practiced & were dedicated ended up not being able to play & were banned from the completion. Now days a lot of time rewards are given out to all the kids that compete weather the kids try hard or not. The kids that push themselves for excellence reward is kinda taken away when everyone is rewarded. The stock market is like a poker game the money will flow to the strongest player/s. @ a poker game most will lose.


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## none (Jan 15, 2013)

humble_pie said:


> we don't teach our children to avoid exams because they might not score As. We don't teach them never to compete in sports because they might lose. Why should anyone preach this in investment 101?


If you're a good parent you probably tell your kids not to gamble their lunch money away. That's a better metaphor.


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## james4beach (Nov 15, 2012)

humble_pie said:


> the disciples of couch always repeat how a stock-picking investor is going to lose, lose, lose, lose. They ignore how half the market will do better than the average.


I think it's asymmetric. A small number of players, who are generally institutional, make big money. They have various advantages: it's their profession, they have the best data, they engage in fraud and insider deals, they run the exchanges, they have key people (notably government people and central bank appointees) representing their industry's interests, and they have an unlimited line of credit (central bank facilities) which allows them to gamble endlessly and never worry about margin calls.

Just look at those trading results from Goldman Sachs or many large investment banks. They can go something like 300 days without a single trading loss. Obviously the institutions and retail do not have equal odds; it's their casino.


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## bgc_fan (Apr 5, 2009)

agent99 said:


> That link refers is again comparing high MER mutual funds with index performance. I don't think it a surprise to anyone that very few can overcome their MER loadings.


As I pointed out, there are not many other ways to do the comparison. I suspect that even taking into account the drag of high MER, the majority will still lose.


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## Rusty O'Toole (Feb 1, 2012)

There are lots of stocks of companies that go broke and become worthless. These are quietly dropped from the averages and replaced by new stocks. So, if you bought the leading stocks in say 1966 you might be disappointed to find your returns no where near the S&P. One of the fads of the day was the 'Nifty Fifty', the fifty leading industrial stocks of the sixties that were considered so reliable you could buy them and put them away forever. Wonder how many are still in business.


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## james4beach (Nov 15, 2012)

Interesting, I went back to the earliest XIU financial statement (iUnits S&P/TSE 60 Index Participation Fund) at Dec 31, 2000. Here were the top 6 holdings of the TSX 60; I just pulled out anything over $200 million in the fund.

NT ... this was 25% of the index!
BCE
RY
TD
BBD.B
MFC

Here's the performance 2001-01-01 to now using stockcharts.com, which adjusts for dividends but doesn't reinvest them (this doesn't matter as I'll compare to XIU using the same tool, same limitation):

NT -99%
BCE +157%
RY +344%
TD +291%
BBD.B -93%
MFC +1%

Amazingly, the total return of the group is +100% with no rebalancing. XIU's return in the same period was +86%.

So it does appear that choosing just the top weights 15 years ago has out-performed the TSX, provided that you gave them equal weight originally.


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## james4beach (Nov 15, 2012)

But wait, here's 2001-01-01 to 2008-01-01 performance

NT -75% (an estimate)
BCE +15%
RY +119%
TD +85%
BBD.B -73%
MFC +83%

Overall +26% ... XIU's is +56%. In this period, choosing just the top stocks seriously underperforms with only half the performance of XIU.

So I'm not sure what the takeaway message is


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## bgc_fan (Apr 5, 2009)

james4beach said:


> But wait, here's 2001-01-01 to 2008-01-01 performance
> 
> NT -75% (an estimate)
> BCE +15%
> ...


I would say that there is no special message. Over certain periods of time some funds do outperform the index. It usually takes some very good managers to over perform on a consistent basis.


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## GoldStone (Mar 6, 2011)

james4beach said:


> But wait, here's 2001-01-01 to 2008-01-01 performance
> 
> NT -75% (an estimate)
> BCE +15%
> ...


The takeaway message is that you should stop using small samples. They are not instructive. 

Here's a paper that looked at all common stocks that traded on the NYSE, AMEX and NASDAQ since 1983. 

The Capitalism Distribution. Observations of individual common stock returns, 1983 -2007



> 39% of stocks had a negative lifetime total return
> (2 out of every 5 stocks are a money losing investment)
> 
> 18.5% of stocks lost at least 75% of their value
> ...





> The conclusion is that if an investor was somehow able to avoid the 25% most profitable stocks and instead invested in the other 75% his/her total gain from 1983 to 2007 would be 0%. *In other words, a minority of stocks are responsible for the majority of the market’s gains.*


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## hboy43 (May 10, 2009)

Large sample sizes don't add anything either. I have yet to meet an investor that invested all his money on one day, and then came back 30 years later to see how he did. These sorts of studies turn into a static process something which is dynamic over a lifetime.

Look at my beloved OSB. A static study from my first buy would show something like -75% return from ~10 years ago. On my current cost of something like $146K I have a book gain, realized gains, and dividends of I don't know $100K, maybe $120K. Probably 2rd place behind MX as my all time highest money maker. (revised from initial off the top of my head statment).

So I believe my reality over someone else's study of two static in time end points.

Hboy43


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## humble_pie (Jun 7, 2009)

GoldStone said:


> Here's a paper that looked at all common stocks that traded on the NYSE, AMEX and NASDAQ since 1983.
> 
> The Capitalism Distribution. Observations of individual common stock returns, 1983 -2007



but who is Blackstar Funds though?

quick google search shows a Blackstar running a commodities fund. They the same people? they some kind of Terrance Odean professional stock hater knockoff but they add spice with a speculative fund of their own on the side?

alas a body can twist statistics to show anything it wants .each:


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## GoldStone (Mar 6, 2011)

Ignore the data, attack the messenger. Don't let the facts get in the way of your personal religious beliefs. I didn't expect anything less from you. 

Do you have any data to support your story-telling? Any data at all?


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## GoldStone (Mar 6, 2011)

hboy43 said:


> Large sample sizes don't add anything either. I have yet to meet an investor that invested all his money on one day, and then came back 30 years later go see how he did. These sorts of studies turn into a static process something which is dynamic over a lifetime.
> 
> Look at my beloved OSB. A static study from my first buy would show something like -75% return from ~10 years ago. On my current cost of something like $170,180k I have a book gain, realized gains, and dividends of I don't know $80, $100K. Probably 3rd place behind MX and SNC as my all time highest money maker.
> 
> ...


You misread the methodology. They did not look at the static 30 year period. Rather, they compared the lifetime returns of each individual stock to the index returns in the same period.


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## Eclectic12 (Oct 20, 2010)

agent99 said:


> ... Mind you, I don't know why James cherry picked those particular funds (in post #1). Why not XIC/XIU for Canada for example? Those have done something like 6-7% Total Return since 2001 (15 years) ...


Then you seem to have missed the question from post #1 ... which is that given other world indexes have done poorly over long periods - why should one believe the NA indexes won't at some point have similar, bad performance?


Cheers


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## Pluto (Sep 12, 2013)

james4beach said:


> But wait, here's 2001-01-01 to 2008-01-01 performance
> 
> NT -75% (an estimate)
> BCE +15%
> ...


The take away message for me is, the dividend paying tortoise's win the race:- ie BCE, and banks. I don't see any resource or other cyclicals in your top 6. I think if you take a good look at whats in the index funds, and take out the cyclicals. you do better. Then take out the one's that are chronically on welfare, like BBD, take out the tech flame outs, and you are left mostly with the plodders that win. Just buy banks, pipelines, and telecoms. If you want to dabble in the welfare clients and tech flame outs, keep that to no more than 5% of your stock allocation until you give up.


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## humble_pie (Jun 7, 2009)

GoldStone said:


> Ignore the data, attack the messenger. Don't let the facts get in the way of your personal religious beliefs. I didn't expect anything less from you.
> 
> Do you have any data to support your story-telling? Any data at all?



but who's "attacking" yoo-hoo each:

your blackstar funds paper looks like a piece of cheesecloth. They might as well have gone back to the era of curbside exchanges in the late 19th century. Like i say, one can twist up statistics to support any old theory.


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## Pluto (Sep 12, 2013)

Moneytoo said:


> Buy the next dip, says Citibank
> 
> 
> 
> ...


Be your own guru. Don't follow others, follow your self. You are well on the way already.


----------



## lonewolf (Jun 12, 2012)

Pluto said:


> Be your own guru. Don't follow others, follow your self. You are well on the way already.


 Thinking to gain truth is a complex process of logical identification it is a selfish act which can only be preformed by the individual mind


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## lonewolf (Jun 12, 2012)

humble_pie said:


> alas a body can twist statistics to show anything it wants .each:


 Math is the most precise language there is. Words are empty containers with meaning we put into them, we don't always put the same meaning into each word. I don't think it is the math that is the problem with statistics it is the words mixed in with the math.


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## hboy43 (May 10, 2009)

GoldStone said:


> You misread the methodology. They did not look at the static 30 year period. Rather, they compared the lifetime returns of each individual stock to the index returns in the same period.


Which is just a refinement on my simplification of point A, start time, point B, end time, many years in between. Sliced and diced in a more sophisticated way for sure, but my general observation stands.  People do not invest on a single day, and come back decades later to see how they did.

I find the study that shows that investors do worse than the mutual funds they invest in to be relevant. This is a study on what people actually do, and commentary on what they could do differently to improve their situation.

hboy43


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## Moneytoo (Mar 26, 2014)

Pluto said:


> Be your own guru. Don't follow others, follow your self. You are well on the way already.


Well I was just thinking out loud  Our Target Asset Allocation is 26% each for Canada and International and 33% for US. We were close to target by the end of 2015, but because Canadian equities did a bit better, our Actuals by the end of March were 28.5% Canadian, 32.6% US and 26.1 International. I just bought more XAW (ex-Canada ETF) with new deposit, and was pondering selling a couple of Canadian winners (BCE and half of NFI) - or maybe adjusting our Targets back to equal weight (say 28% each) But decided to leave everything "as is" for the time being


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## hboy43 (May 10, 2009)

GoldStone said:


> Ignore the data, attack the messenger. Don't let the facts get in the way of your personal religious beliefs. I didn't expect anything less from you.
> 
> 
> 
> ...


Who is this directed at? I don't think me.

Anyhow if me, I would add to my previous comment. What exactly is the message? What is actionable by myself and others going forward that will improve my and their future returns?

Hboy43


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## GoldStone (Mar 6, 2011)

hboy43 said:


> Who is this directed at? I don't think me.


Not you. HP post #54.


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## 1980z28 (Mar 4, 2010)

They will go to zero or leave them in your will

Lets make a bet

Clint Eastwood Do You Feel Lucky ??????


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## donna9 (Apr 9, 2016)

Historically indexes do but i notice that most people tend to cash out long before that. I've had some for decades and although there have been times when it did end up in the red (e.g. 2008) it has been a great way to make a profit in the long-term, consistently.


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## techcrium (Mar 8, 2013)

james4beach said:


> Just look at those trading results from Goldman Sachs or many large investment banks. They can go something like 300 days without a single trading loss. Obviously the institutions and retail do not have equal odds; it's their casino.


So if that were the case, then why don't you buy Goldman Sachs stocks then ??


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## techcrium (Mar 8, 2013)

GoldStone said:


> The takeaway message is that you should stop using small samples. They are not instructive.
> 
> Here's a paper that looked at all common stocks that traded on the NYSE, AMEX and NASDAQ since 1983.
> 
> The Capitalism Distribution. Observations of individual common stock returns, 1983 -2007


The problem I have with your article is that whether they take into account market cap?

The index is going to be filled with a bunch of no name miners vs. a household name like Apple or Google which are $600 billion

So say there are 600 miners worth $1 billion each and you have Google at $600 billion right? Index worth $1.2 trillion.

If they all fail and Google triples, yes this hypothetical index has just gained 50%. And according to our index, it is a 600:1 odds.

However you can't measure it like that because we aren't gonna invest in the no name miners.


So point being, I am interested at which companies they documented as a fail.

Is it a fail when the smaller company is acquired by a larger company?
What about company splits like Paypal and Ebay? Does that count as a fail or success?
What about when parent company "bankrupts" but the successor company becomes very successful?
*A bunch of no-name miners failing is ALOT different than Lehman Brothers or Kodak failing*. In the last decade, how many household names have actually failed? Probably less than the number you count with your hands...

How do those affect their calculations? It seems more like they are pushing an agenda.


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## techcrium (Mar 8, 2013)

There was a study done (that I can't seem to find), where if an investor simply bought the original 12 dow companies, today they would be filthy rich simply because even though most of the original are gone, they are in some shape or form still alive....

Acquisitions

Company spin offs

etc


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Then you seem to have missed the question from post #1 ... which is that given other world indexes have done poorly over long periods - why should one believe the NA indexes won't at some point have similar, bad performance?


Right, thanks for bringing it back on track. That was my primary question.

Undoubtedly some markets will perform well in one period, others not. I showed a few examples of standard indices that have performed terribly over very long periods (15-20 years). A lot of people have suffered in these. XIN (one of the first international ETFs in Canada) has over $1 billion in assets. EWU has $2 billion. EWJ (the worst performer) has $16 billion, yet has a lower return than a savings account! Over 20 years!

North American stocks have done quite well in the last 20 years. My fear is that returns going forward could be significantly worse. I think it's a justified fear, given what's been seen in other global markets.


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## none (Jan 15, 2013)

Of course it is and it should be. That's why you have global diversification.... I really don't get this thread...


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## james4beach (Nov 15, 2012)

none said:


> Of course it is and it should be. That's why you have global diversification.... I really don't get this thread...


I have not communicated my point well, then.

Here's my point: buying and holding the index, even for 20 years, is a far-cry from a "guaranteed" good return, or even a return that beats cash and GICs.

Many of the indexing posts on this forum (and I'm guilty of this too) say that you are virtually guaranteed stock profits if you buy and hold the TSX and/or S&P 500 for something like 20 years. Some people even make that argument for a mere 10 years.

When I bring up these counter examples, people say I'm cherry picking data. _People want to believe that stock returns are great._

But think about these "dud" cases that I mentioned. They are basically Japan and much of Europe. For a very long time, Japan was the second largest stock market in the world. The fact that Europe & Japan have done so badly is a noteworthy point, and it's not cherry picking. These aren't random global stock markets cherry picked from many options: they are among the largest, and in the case of Japan, #2 largest.

Here's the more important point:

*Among the world's giant stock markets, approx 1/4 to 1/3 by global market cap have done very badly over 20 years -- worse than fixed income & cash*. This is what I showed in my first post. When such a high proportion of global markets have terrible returns, you have to take note.

People on these forums routinely think they have very good odds of having great long-term stock returns. But the data shows otherwise. If you acknowledge this fact and understand the data, you'll probably want to hold less stocks.


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## mreconomic (Apr 13, 2016)

*Historically yes!*

When looking in a long term investment it has been proved that American stock market has been giving an 8% yearly in average... It doesnt mean every year hs been the same, but if you bought stocks 20 years ago, now you would have made around a 400% profit.


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## james4beach (Nov 15, 2012)

I don't think you read a word of what I said. For the US, maybe yes. But look at the global case and at least 1/4 of global indices... by market cap... have had terrible returns over 20 years.

The US returns are just one data point. You need to look at all global returns, and the picture is pretty bad there among major economies.


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## cainvest (May 1, 2013)

james4beach said:


> *Among the world's giant stock markets, approx 1/4 to 1/3 by global market cap have done very badly over 20 years -- worse than fixed income & cash*. This is what I showed in my first post. When such a high proportion of global markets have terrible returns, you have to take note.


So are you saying ETFs like VXC should be avoided?


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## GoldStone (Mar 6, 2011)

J4B, you keep mentioning poor return of the Japanese market but you never provide the context. Do you know the context? I bet you do. So why don't you mention it?

Here's the context.

Japan had a ginormous stock bubble that topped in 1989/1990 at CAPE of 90.

*90*

To put that number in perspective, US spectactular tech bubble topped at CAPE of 45. Japanese bubble was twice as big.

After Japanese market crashed, CAPE remained in the 30-40 area for a decade. Almost as expensive as the top of the US bubble. Then it inflated again to CAPE of 60. Finally, it crashed to an almost reasonable CAPE of 20-25.

Now look around the world. Do you see any major markets trading at CAPE 90? 60? 40?

No you don't. So how is your Japanese example relevant?


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## GoldStone (Mar 6, 2011)

J4B, you ignored my counter example the first time I posted it. So here it is again. Globally diversified portfolio did way better than your cherry picked examples. This portfolio is representative of how couch potatoes invest in real life. No one in their right mind bets 100% on a single country or a single region.

http://www.ndir.com/cgi-bin/downside_adv.cgi

*Portfolio*

TSX Composite: 33%
S&P500: 33%
MSCI EAFE: 33%
3-month Canadian T-bills: 1% (just to round things up to 100%)

*Geometric returns in CAD*

10 years (2006-2015): *6.6%*
20 years (1996-2015): *7.2%*
30 years (1986-2015): *9.0%*
40 years (1976-2015): *11.3%*


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## hboy43 (May 10, 2009)

GoldStone said:


> J4B, you ignored my counter example the first time I posted it.


I don't think James has responded to anything I have written in over a year.

Of course, hardly anyone else does either, so it might just be me (I note that present company did comment recently). I often wonder if people think I am unfriendly, nuts, lying, or so obviously sensible that it merits no comment, or something else.

hboy43


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## Pluto (Sep 12, 2013)

James, Just some thoughts on the way you phrase the question. You use the word "always" and it is difficult to prove anything is always true. You are in engineering, not sure which type. But supposing someone was to ask will a Rolls Royce jet engine always run? What would you think? What if someone asked will the automation in an Airbus 330 always keep the plane flying? 

To me it doesn't matter what field one is talking about the word "always" is a problem. It is more a matter of what are the probabilities. If you ask for absolute certainty not even classical mechanics can provide that. 

In stocks I think the way to ask the question is how to improve the odds of making money, just as it is in aircraft: how to improve the odds of a successful flight. If one insists on "always", one will never fly or invest in stocks.


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## Retired Peasant (Apr 22, 2013)

hboy43 said:


> I often wonder if people think I am ..., or so obviously sensible that it merits no comment


this


----------



## Moneytoo (Mar 26, 2014)

cainvest said:


> So are you saying ETFs like VXC should be avoided?


If I didn't watch The Big Short recently, I would just laugh it off, as usually - but who knows, maybe we're all brainwashed and stock-ophobics/GIC-oholics will have the last post-apocalyptic laugh  From RFD, bolded by me:



retireat50 said:


> Anyone else disappointed with vxc performance *YTD*? Obviously due to fx swing but hard to swallow seeing markets run-up and your largest foreign holding in the red nearly 10% for the year





retireat50 said:


> Well VXC is 1/2 US stocks. It's the runup in Canadian currency which has caused the loss. So oil goes down and VCN gets killed. Oil goes up, dollar goes up and you get killed with VXC. *Something something about long term*


(Disclaimer: I'm not selling my XAW or anything else, but have some residual doubts about how long the idea of investing by knowing and doing next to nothing will last )


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## agent99 (Sep 11, 2013)

Pluto said:


> James, Just some thoughts on the way you phrase the question. You use the word "always" and it is difficult to prove anything is always true.


How about always eventually ????


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## andrewf (Mar 1, 2010)

The answer to that question is then no. Imagine you owned stocks in Russia or China prior to their revolutions. You would have been permanently wiped out. Also, in theory, a gamma ray burst could happen tomorrow, all humanity would be exterminated over a period of days or weeks, and your stocks become worthless (along with every other asset).


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## agent99 (Sep 11, 2013)

andrewf said:


> a gamma ray burst could happen tomorrow, all humanity would be exterminated over a period of days or weeks, and your stocks become worthless (along with every other asset).


Well at least this thread would also come to an end


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## GoldStone (Mar 6, 2011)

agent99 said:


> Well at least this thread would also come to an end


Can't happen soon enough. :hopelessness:


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## zylon (Oct 27, 2010)

> Do stocks always become profitable, eventually?


Answer : definitely not.

This is a popular story among the "buy low" crowd.
What isn't mentioned is that a high percentage of these companies went BK.


how to take a screenshot on a pc


----------



## humble_pie (Jun 7, 2009)

GoldStone said:


> Ignore the data, attack the messenger. Don't let the facts get in the way of your personal religious beliefs. I didn't expect anything less from you.
> 
> Do you have any data to support your story-telling? Any data at all?




at least 2 aspects to your Blackstar citation dismay me.

first, the study does not represent all stocks that traded on the nyse, the nasdaq & the amex from 1983 to 2007, although the authors' language claims that it does. In reality, the study includes only a curated list of 8,054 of those stocks.

the study is not clear about inclusion definitions. Although it refers to what would have been changing inclusion criteria for the Russell 3000 across a long span of 24 years, it does not indicate how, precisely, the 8000 curated stocks were pulled from a data base said to number more than 24,000 stocks.

it's difficult to escape the conclusion that the stock selection was skewed to include penny miners & speculative issues, as has been mentioned upthread. The 8000 curated stocks did not have to meet Russell 3000 inclusion criteria for their entire lifetimes as publicly traded vehicles, for example. They only had to meet the criteria once. Or, as the study recites, "at some point in their lifetime."

_"Our database covers all common stocks that traded on the NYSE, AMEX, and NASDAQ since 1983, including delisted stocks. Stock and index returns were calculated on a total return basis (dividends reinvested). Dynamic point-in-time liquidity filters were used to limit our universe to 8,054 stocks that would have qualified for membership in the Russell 3000 at some point in their lifetime."_

a 2nd handicap to this study is the fact that it tracks its 8000 stocks over their lifetimes as publicly traded vehicles, or until 2007, whichever first occurs. This is emphatically *not* how individual retail investors behave. It would be safe to say that no buy-&-hold investor has ever existed who held all of his stocks unwaveringly until his own death, or until the buyout, bankruptcy or winding-down of each of his holdings occurred.

the reality is that individual retail investors buy & sell securities across their lifetimes. As another poster upthread says, no study can track their individual performance.

bref, the Blackstar study is a 24-year study that compares the lifetime performance of a selection of just over 8000 stocks with the Russell 3000 index. This is not a study that compares portfolio performance by a sample of retail stock-pickers with an index. I for one see no reason why the Blackstar study should be brought forward as evidence that individual retail investors fail to meet index performance.


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## Pluto (Sep 12, 2013)

humble_pie said:


> at least 2 aspects to your Blackstar citation dismay me.
> 
> bref, the Blackstar study is a 24-year study that compares the lifetime performance of a selection of just over 8000 stocks with the Russell 3000 index. This is not a study that compares portfolio performance by a sample of retail stock-pickers with an index. I for one see no reason why the Blackstar study should be brought forward as evidence that individual retail investors fail to meet index performance.


A fine and clinical analysis. The only thing missing is your sometimes literary flair which makes reading your posts worthwhile for the metaphors alone. 

Mr Goldstone is chronically worried people disrespect indexing strategies and apparently feels the way to defend that approach is to attack other stratagems. One day I hope he will see that they way to defend indexing, which has merit for some types of investors, is to focus on its positive qualities and spend less time in ideological sniping at other approaches.


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## Pluto (Sep 12, 2013)

zylon said:


> Answer : definitely not.
> 
> This is a popular story among the "buy low" crowd.
> What isn't mentioned is that a high percentage of these companies went BK.
> ...


Apparently with his highly diversified strategy the BK's didn't matter to the over all result. To me he was an inspiration and I made substantial chunks of money in the '09 - '10 period using leverage and buying low. No losses or BK's either, although my heart stopped beating for a while a couple of times.


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## james4beach (Nov 15, 2012)

GoldStone said:


> J4B, you ignored my counter example the first time I posted it. So here it is again. Globally diversified portfolio did way better than your cherry picked examples.


I thought I addressed that. You only saw a strong performance there because the USA, which you heavily weighted, happened to have very good performance. You cherry-picked USA.

Your historical results are not in doubt. I'm saying that this is a lucky result that comes from the US markets doing so well. If the US doesn't do so well, you'll get a worse result. You're banking heavily on the US repeating its record-breaking performance going forward.


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## GoldStone (Mar 6, 2011)

james4beach said:


> I thought I addressed that. You only saw a strong performance there because the USA, which you heavily weighted, happened to have very good performance. You cherry-picked USA.
> 
> Your historical results are not in doubt. I'm saying that this is a lucky result that comes from the US markets doing so well. If the US doesn't do so well, you'll get a worse result. You're banking heavily on the US repeating its record-breaking performance going forward.


US represents approximately 50% of the global stock market cap. The portfolio I posted allocated 33% to the US. It seriously under-weighted the best market in the world. It's the opposite of cherry-picking.

What do you think about these results? I dropped the US altogether.

http://www.ndir.com/cgi-bin/downside_adv.cgi

*Portfolio*

TSX Composite: 50%
MSCI EAFE: 50%

*Geometric returns in CAD*

10 years (2006-2015): 5.1%
20 years (1996-2015): 6.5%
30 years (1986-2015): 8.1%
40 years (1976-2015): 10.7%


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## james4beach (Nov 15, 2012)

Pluto said:


> James, Just some thoughts on the way you phrase the question. You use the word "always" and it is difficult to prove anything is always true.


Good point, I shouldn't say absolutes. My whole argument is about probability. Grab a major economy's stock index out of a bag. What is the probability that its long term performance will firmly exceed cash/fixed income? Answer: approx 67% - 75% probability of good performance, for ONE index.

So the first conclusion, which I think we all agree on, is that if you only invest in one index (like Canada alone) you may not have a strong performance even in the long term. Single country exposure is not a great way to invest. GoldStone agrees.

GoldStone makes the argument that if you diversify globally, the results get much better. He says that if you invest in equal weight (Canada, US, MSCI EAFE) then the resulting performance is great overall.

But then I point out that US has _outlandishly_ good performance. That 20 year idealistic performance GoldStone posted is 7.2% annualized over 20 years for the global mix. If I use the weightings he suggested, yes I more or less get the same thing, 7.1%. This is largely a result of strong US & Canadian performance in that period. [1]

The result you get is a function of weightings and luck-of-the-draw returns. GoldStone, yes I picked the most dramatic Japanese counter-example, but that kind of thing happens to you and you can't foresee it. Some (including myself) argue that the US + Europe is dramatically overvalued due to bailouts and government intervention in markets. Look back it in later and in hindsight you'll say it was foreseeable, but for now it's not. So I'm keeping Japan in the mix.

GoldStone got a 7.2% annualized return for a global mix, and he concludes that global diversification always works. Again, look at my list in [1] and you'll see where this number came from.

MY argument is you don't know what constituent performances you will get after applying arbitrary weights to that grab bag. All we have are statistics for [1]:

mean: 5.94
median: 6.32
standard dev: 3.07

*Statistical conclusions*: the returns are all over the place. Your best guess for 20yr returns is the average, 5.9%, and assuming a normal distribution, at the one sigma confidence level, the global portfolio could return between: 2.9% to 9.0%. That average return is slightly higher than the fixed income return. Do you see what I mean about "stocks are not a sure bet" even over 20 years?

[1] 20 yr total return performances 1995-2015: Germany 8.99%, USA 8.79%, Canada 7.42%, Australia 6.32%, France 5.18%, UK 4.88%, Japan 0.00%


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## james4beach (Nov 15, 2012)

GoldStone said:


> What do you think about these results? I dropped the US altogether.


That 6.5% you now get for 20 yrs is right around the median return I got looking across all the big markets, I got 6.3%


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## GoldStone (Mar 6, 2011)

james4beach said:


> GoldStone got a 7.2% annualized return for a global mix, and he concludes that global diversification always works.


Don't put words in my mouth, okay? I never said anything of that nature.

*I posted globally diversified examples to show how slanted your cherry-picked single-country examples are.*

That's all.


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## james4beach (Nov 15, 2012)

GoldStone I'm not saying stock returns can't be high, I'm just saying it's far from a sure bet, the way it's often phrased (in our forum and in the media) to investors. My gripe is about the perceived certainty of high returns even over 20 years.

I agree that the mean & median returns across those big markets look pretty good. They _have_ been good.

But I also point out that the VARIANCE is very high. Looking at the statistical results for the set of returns, diversified global returns could be between 3% to 9%. That's a huge range.


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## james4beach (Nov 15, 2012)

GoldStone said:


> I posted globally diversified examples to show how slanted your cherry-picked single-country examples are.


My latest results are not cherry picked. They are showing returns of all the big markets; any of these are possible and you never know which one you'll get.

Again, 20 yr returns 1995-2015 (also remember these are sampled at interim HIGHS)

Germany 8.99%
USA 8.79%
Canada 7.42%
Australia 6.32%
France 5.18%
UK 4.88%
Japan 0.00%


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## GoldStone (Mar 6, 2011)

james4beach said:


> GoldStone I'm not saying stock returns can't be high, I'm just saying it's far from a sure bet, the way it's often phrased (in our forum and in the media) to investors. My gripe is about the perceived certainty of high returns even over 20 years.
> 
> I agree that the mean & median returns across those big markets look pretty good. They have been good.
> 
> But I also point out that the VARIANCE is very high. Looking at the statistical results for the set of returns, diversified global returns could be between 3% to 9%. That's a huge range.


You are not saying anything new, controversial or contrarian. Stocks are not a sure bet. Stocks are volatile. It is very likely that future stock returns will be lower than past returns (because of slow GDP growth, high debt levels, ageing demographics).

I have two gripes about your argument:

1. you represent your position as contrarian (it is not)
2. you use cherry-picked single-country examples to support your pseudo-contrarian view.


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## james4beach (Nov 15, 2012)

cainvest said:


> So are you saying ETFs like VXC should be avoided?


Not at all. VXC seems nice. I'm saying you should have realistic expectations of future stock market returns, and recognize that expected returns may well be inferior to fixed income returns, even for 20 years.

An update to my last calculations, when I use the 20 year returns to date [1], for the group of major global indices, I get an average return of 4.85% and a one sigma-based estimate of: 1.8% to 7.9%

So if you have a realistic expectation of future 20yr returns, *in the ballpark of 2% to 8% annual total return*, there's absolutely no problem with globally diversified stock investment.

[1] For 1996-04-16 to 2016-04-16, returns are: Germany/DAX 8.11%, US/S&P500 7.05%, Canada/TSX 6.09%, Australia/AORD 5.28%, France/CAC 4.93%, UK/FTSE 3.60%, Japan/Nikkei -1.11%


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## james4beach (Nov 15, 2012)

GoldStone said:


> I have two gripes about your argument:
> 
> 1. you represent your position as contrarian (it is not)


You may be right on this one



> 2. you use cherry-picked single-country examples to support your pseudo-contrarian view.


I hardly think that a list of the 6 largest market cap indices in the world is cherry-picking. Cherry picking would be if I derived the statistics from the worst performing ones. I'm using all of them, including the best performing ones.


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## GoldStone (Mar 6, 2011)

james4beach said:


> Japan 0.00%


I addressed Japan in post #78.


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## james4beach (Nov 15, 2012)

GoldStone said:


> I addressed Japan in post #78.


And I said you can't simply ignore one of the largest stock markets in the world because (in hindsight) you think it was obviously a bad investment. *That* is cherry-picking. In Japan's case, the valuation bubble showed up clearly in some simple metrics. In other cases like the USA (right now) it may not even be visible. Many people think the US has deep systemic problems.

How many people do you think have been invested in the Nikkei this whole time? Just the EWJ ETF fund alone has $17 billion of assets for chrissake.


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## GoldStone (Mar 6, 2011)

james4beach said:


> And I said you can't simply ignore one of the largest stock markets in the world because (in hindsight) you think it was obviously a bad investment.


I didn't say we should simply ignore Japan. I said that we should dig deeper and understand why it performed so poorly. Once we understand it, we should try to figure out whether Japan example is relevant today.

Japan bubble traded at a CAPE of 90. US tech bubble traded at a CAPE of 45.

CAPE is the best predictor of 10 year stock returns we have (and yes it's far from perfect). Future 10 year returns are inversely related to the current CAPE.

When you start a period at CAPE of 45 (never mind 90), you can expect poor returns in the next 7-10 years. Starting valuation matters.

I don't see how your Japanese example is relevant, given where CAPEs stand today:

http://www.starcapital.de/research/stockmarketvaluation




james4beach said:


> Many people think the US has deep systemic problems.


That's one of the reasons why many people think that future stock returns will be lower. It's a better argument than blind quoting of Japan performance.


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## james4beach (Nov 15, 2012)

I guess we just disagree on the relevance of Japan.

I think Japan is relevant because there are similarities to big markets today (US & Europe): (1) it's a giant economy that's past its best days, (2) zero interest rate policy... the hallmark of the Japanese economy and now the entire western world, (3) continuous efforts to kick-start inflation that never succeed and are met with relentless deflation. Federal Reserve and ECB experts keep reflecting on Japan and say that BoJ had the right idea, but just "didn't print enough". This motivated the entire QE program and now negative policy rates, already in place at Swiss central bank and Scandinavia.

While it's true that CAPE levels in Japan have not been seen in US & Europe, the CAPE is just one indicator. I believe that US intervention and bailout processes inflated _E_ temporary, which makes CAPE look normal (though elevated). I think in the bigger picture, there are enough parallels that make Japan relevant. I can't dismiss it, myself.

It would be easier to dismiss Japan if it was a small, minor economy. But it has been the 2nd largest stock market by market cap for a long time. In my own calculations and projections, I do consider the Japanese example as a possible outcome of US & European stocks.


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## Pluto (Sep 12, 2013)

james4beach said:


> I'm saying that this is a lucky result that comes from the US markets doing so well. If the US doesn't do so well, you'll get a worse result. You're banking heavily on the US repeating its record-breaking performance going forward.


I just want to focus on the phrase "lucky result". If you completed and tested an engineering project, and it worked out, would you say it was just a lucky result? I'm concerned about the theory that stock returns, if good, must be lucky, or if bad must be bad luck. 

High quality business + fair value or better, you you will do fine. 

This thread reminds me of the pessimism in the late 70's early 80's. The CDN and US indexes had basically languished for over a decade. But during the same time frame Lynch was making a fortune for his Magellan fund investors, Templeton was outstanding, and Buffett was too. there are steps they go through to increase their odds of making money, similar to the way an engineer takes steps to ensure his project will be a success. They basically lay out for people how they did it. To me, all it takes is to adopt their thinking and transform it into action. For those investors who don't want to do that, by all means, fall back on indexing and dollar cost averaging. 

So I don't get the "luck" theory of stocks. Its a persuasion tool to get people to conclude that indexing is the one and only way. The reality is it is a fine way for people who don't know what they are doing.


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## humble_pie (Jun 7, 2009)

Pluto said:


> This thread reminds me of the pessimism in the late 70's early 80's. The CDN and US indexes had basically languished for over a decade. But during the same time frame Lynch was making a fortune for his Magellan fund investors, Templeton was outstanding, and Buffett was too. there are steps they go through to increase their odds of making money, similar to the way an engineer takes steps to ensure his project will be a success*. They basically lay out for people how they did it. To me, all it takes is to adopt their thinking and transform it into action. For those investors who don't want to do that, by all means, fall back on indexing and dollar cost averaging.*
> 
> So I don't get the "luck" theory of stocks. Its a persuasion tool to get people to conclude that indexing is the one and only way. The reality is it is a fine way for people who don't know what they are doing.



yes, absolutely.

what's fascinating here is that Pluto has demonstrated, in real time in this forum, a marvellous ability to understand & deal with the market.

way back in december 2014, he called an interim low in energy stocks almost to the hour, certainly to the day. This was never luck, Pluto has also marshalled an entire library of chart analytics & fundamental value research in cmf forum.

recently he's been posting how he's begun to nibble again & i couldn't agree more.

performances such as Pluto's do not mean that indexation is inappropriate, useless, wrong or even inconvenient. Indexation is a grand approach that helps an investor stay afloat with the markets, more or less stay afloat with broad inflationary trends, not suffer drastic losses. Best of all, it's an approach that's fairly easy to master & implement.

what is regrettable is that some promoters of ETF indexation are so rigidlyi fanatical in their preaching that they move on to assault & attack those of us who are not devout disciples. Their one-sided proselytizing suggests that they have personal agendas ...


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## Pluto (Sep 12, 2013)

One of my big clues to start thinking of lightening up was this forum late 2013 early 2014: in one thread someone posted they were up 30% in 2013, then numerous others followed with similar delighted posts. Nothing wrong with that. But I started thinking of Templeton's idea that bull markets top out when everyone is feeling great, and Buffett gets fearful when others are greedy. Gee. Looks to me like the tsx topped out in, well, 2014 not too long after many were reporting a great year. I told myself a long time ago that if I am going to sell try hard to well to happy buyers, and if I'm going to buy, try hard to buy from discouraged sellers. Once I gained confidence in what I was buying, it wasn't difficult to buy low. 

I'm not confident about the US markets. Earnings are not good enough to justify that 2013 30% gain even in 2016. Low rates are not enough to convince business to borrow and invest. They won't borrow if they think they can't make money with it, so low rates is not working to keep it going. And the price and volume action is consistent with this somewhat poor outlook - US markets can't get to justifiable new highs and the risk of significant decline is evident. Besides, Bogle himself said the appreciation potential in the US is currently poor. And I am not knocking him. He brought doable diversified investing to the masses. I just want to do better than the masses.


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## james4beach (Nov 15, 2012)

Pluto said:


> I just want to focus on the phrase "lucky result". If you completed and tested an engineering project, and it worked out, would you say it was just a lucky result? I'm concerned about the theory that stock returns, if good, must be lucky, or if bad must be bad luck.


Good question and now I think I can really illustrate to you why the statistics of stock investment are so worrying.

In engineering, you know the models of the inputs quite well and you control the inputs so that you reliably know what you're getting. For example if I'm building a bridge, I have models of the concrete and steel beams that goes into it. You'd have reliable models on the inputs, knowing how they will perform, which lets you put them together and have a good idea of how the result performs.

If global stock investment _was_ an engineering project like bridge building, here's what you'd have to say to your customer: we've got this concrete and steel sourced from all over the place. The strength and reliability of each piece varies wildly, with very wide tolerances and loose guarantees. We're going to put these beams and some are strong, others are weak. *Based on the past behaviour of these parts, we estimate the average lifetime of this bridge is 4.9 years. However at the one sigma confidence level the bridge may only stand up between 1.8 years and 7.9 years. At the two sigma confidence level (95% confidence, probably the number you really want to hear) the bridge will stand up between ZERO and 11 years.*

^ the above is a direct mapping to these stats I ran on 7 of the world's largest stock markets, for 20 year returns.

In engineering, you don't presume you're going to get the high end of the statistical estimate. That's why I say that after getting lucky with US & Canadian returns, it's a mistake to consider this the norm. The past global outcomes provide the best basis for what we think we might get going forward -- and stock returns, even if you diversify globally and even if you hold for 20 years, have a huge range of outputs... something like 0% - 11%


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## james4beach (Nov 15, 2012)

To clarify, all these numbers I'm showing are for index investment, and my forecasts like forward returns of 0%-11% are about global index investment


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## Pluto (Sep 12, 2013)

james4beach said:


> Good question and now I think I can really illustrate to you why the statistics of stock investment are so worrying.
> 
> In engineering, you know the models of the inputs quite well and you control the inputs so that you reliably know what you're getting. For example if I'm building a bridge, I have models of the concrete and steel beams that goes into it. You'd have reliable models on the inputs, knowing how they will perform, which lets you put them together and have a good idea of how the result performs.
> 
> ...


Yes, predictability is more accurate in engineering. 
My point was that there are steps that can be taken to improve ones chances of success in both fields. 
over 20 years 1995 - 2015 I get about 6% annual compounded for the tsx. To me that's not good enough especially since I know the good value investors do much better. So then I think what is it that the best do and don't do to improve their returns? Their favorite stocks are not cyclical stocks. With Lynch it was stuff like fast growing restaurants and retail such as Dunkin Donuts and the gap. With Buffett it was stuff like insurance and finance like AMX. No mining stocks. No airlines. And so on. So then I think what return would I get if I looked at the TSX sans cyclical resource stuff? Its not complicated. One does not have to go to Harvard and get hooked into the old boy network. To me its just getting the big picture of what they did and din't do that contributed to their success and incorporate that into what I do. 
For instance Buffett liked some finance stocks. So I compared the tsx with cdn banks. They all out perform the index. Then I look at other industries. I'm interested in the ones that usually outperform the index and in particular the companies that do most of the heavy lifting in the best industries. When one picks out of the best industries, ones odds improve. Too, if one pays a fair price and not an over valued price, one again improves the odds.

When I write like this it seems to really annoy some indexers which is not my intention. ETF's and dollar cost averaging is absolutely the right thing to do for many people. For you it isn't because the returns are not worth the risk. So identify the companies that are holding the index back and avoid them. Ferret around in the group that does the heavy lifting over many decades.


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## lonewolf (Jun 12, 2012)

There can only be one best of anything. I think it was a Bill meridian interview I was listening to. When Bill asked Richard Mogley sp? who was once the president of the foundation of the study of cycles if the foundations work also found the most powerful cycle in stocks was the seasonal cycle. Richards answer was yes. To me it just makes sense if your going to play cycles the best cycle should be used with stocks that have strong seasonal tendency. 

Kinda not cool the sun is supplying us with increased energy @ a time of year when energy does well. In May spring showers bring June flowers in May flower stocks do well. As weather turns cold in Nov going into New Year everything freezes & turns as hard as steel during this time steel stocks do amazing. There are a few others with some weird like similarities which I some times play don't want to give to much away. The flower trade I have not taken though it is some what good.


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## james4beach (Nov 15, 2012)

Pluto said:


> When I write like this it seems to really annoy some indexers which is not my intention. ETF's and dollar cost averaging is absolutely the right thing to do for many people. For you it isn't because the returns are not worth the risk. So identify the companies that are holding the index back and avoid them. Ferret around in the group that does the heavy lifting over many decades.


In my defence, I am trying to pick stocks too and I have a thread on it:
http://canadianmoneyforum.com/showthread.php/49914-Tracking-my-non-dividend-portfolio-DIVZ

Admittedly this experiment doesn't have much track record, but since 2013 my picks have given cumulative return of 24% vs 12% for TSX as shown in the performance stats as of Dec 2015. And my current portfolio is outperforming the TSX right now.


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## Pluto (Sep 12, 2013)

james4beach said:


> In my defence, I am trying to pick stocks too and I have a thread on it:
> http://canadianmoneyforum.com/showthread.php/49914-Tracking-my-non-dividend-portfolio-DIVZ
> 
> Admittedly this experiment doesn't have much track record, but since 2013 my picks have given cumulative return of 24% vs 12% for TSX as shown in the performance stats as of Dec 2015. And my current portfolio is outperforming the TSX right now.


Oh that's interesting. somehow I missed that thread. I think for younger investors zero dividends can be a plus. Aiming for capital gains is a worthy goal. For older folks their interest often tilts to dividend payers cause they want some income for living expenses without having to fiddle with selling, and being concerned about being forced to sell in a bad market.


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## SonHawk (Dec 23, 2015)

*Will stock market crash in 2016? Your Thoughts!!*

In my opinion, as the things are changing in US Economy, few things indicating stock market crash in 2016. US elections are there in 2016 and U.S. companies are relying more and more on foreign countries for growth. As the global economy is doing so poorly. The International Monetary Fund has sounded the alarm, warning of a possible new financial crisis. Since March 2009, the NASDAQ has soared more than 250% and the NYSE is up 130%, while the S&P 500 has gained 182% and the 30-company-strong Dow Jones Industrial Average is up more than 145% (and I think this is the bubble which is being created by the big players). On the other hand real unemployment rate is also increasing month over month. All these could lead to a stock market collapse . The U.S. stock market has been living on borrowed time. And it’s time for payback. 2016 could very well be the year the U.S. stock market collapses

What are your thoughts? Let’s have a healthy discussion on this!!!


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## Pluto (Sep 12, 2013)

^
Crash is a dramatic and emotion laden word that often doesn't get defined in this forum. If crash is defined as a one or two day 20%+ drop, I don't think we can know that in advance. 
But we do know the economy and stock market are cyclical. Bull markets end, and bull markets are punctuated by bear markets. In my view this one is ending, but it is a slow train coming. Painfully slow. 
I get the feeling that maybe the US fed is, although it isn't supposed to, taking it easy due to election year. Anytime after July, look out below - the S&P will drop below 1700 is my current guess. How far? is unknown, but 1200 is quite possible. The idea here is of course, to guess often, and hopefully people remember the guess that was correct, and not the other ones. LOL. My main concern is based in declining revenues and earnings - it is happening despite tremendous stimulation. 

The upshot is, I'm like you, not too optimistic about the US markets. I'm looking forward to a reset to bag some good stock at lower prices. Then relax and enjoy the ride.


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## Jaberwock (Aug 22, 2012)

No one can answer j4b's question, because he uses the term "always", which can never be proven. But here is reference that shows what has happened over the last 40 years

http://findependencehub.com/stocks-beat-bonds-hands-down-bob-cable/


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## 1980z28 (Mar 4, 2010)

Chase my liq from 12 to 6?

now at 136k

now below todays cost of 8.80

or my chase cost of fm for 150k plus made a 32%

If you have time and cash

I had lots of leverage and cash to chase

How much do you believe in your original choice and how far car you go

IT IS GAMBLING,,,,,ENJOY

To chase it is a great sport


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## Moneytoo (Mar 26, 2014)

1980z28 said:


> How much do you believe in your original choice and how far car you go
> 
> IT IS GAMBLING,,,,,ENJOY
> 
> To chase it is a great sport


I used to think how can I compete with people who do it 24/7 (or at least 8/5) - from one of my now useless subscriptions lol:



> The Fund [that would prefer to stay nameless] had a tough month and was out of sync with the market's trend change in March.
> 
> The Fund lost 6.1% for the month. We got caught in a classic "whipsaw" as sharply falling markets quickly turned heel and surged higher. We were left holding gold bullion which did not move at all, and actually fell in $CAD.
> 
> After a stunning reversal the model points to a renewed uptrend in stocks, and as our process is to align with the trend, we are back long the market.


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## hboy43 (May 10, 2009)

Moneytoo said:


> I used to think how can I compete with people who do it 24/7 (or at least 8/5)


We actually have huge advantages. We can ignore the quarterly report card and think in 5+ year terms. Our small amounts in the market don't have the same liquidity concerns. We don't have to worry about losing our jobs. We can overweight a sector like materials when it is beaten into the ground after not really having much in the space in "normal" times. We don't have to dream up stuff like 'We got caught in a classic "whipsaw" ...'

I have a stunning advantage in investing as I have absolutely nobody, including my wife, staring over my shoulder. How many people could sit on that table of losses I published a few months back, waiting for better days, instead of being pressured to sell out in a panic.

hboy43


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## Moneytoo (Mar 26, 2014)

hboy43 said:


> How many people could sit on that table of losses I published a few months back, waiting for better days, instead of being pressured to sell out in a panic.


I'm not sure if some of our losers will ever see the better days, but willing to find out... My favorite line is when somebody calls in and asks "Shall I hold or sell?" and the talking head replies, "Sell - there's more money to be made elsewhere!" And no one says that there's also a chance to lose more money elsewhere - maybe that's why I like James' posts, even though I keep choosing to stay the course...


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## Moneytoo (Mar 26, 2014)

Ha:



> Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School are the acknowledged experts on global investment returns, having compiled data covering 22 countries over more than a century. As of February 2013, the longest period of negative real returns from US equities was 16 years. But it was 19 years for global equities (and 37 for world ex-US), 22 for Britain, 51 for Japan, 55 for Germany and 66 for France. Such periods are much longer than most small investors would have the patience to wait.
> ...
> Some will complain that this is cherry-picking the starting point (although that is not true of the chart, which includes the dotcom boom). But the point of arguing that equities are the best asset for the long run is that it is an absolute statement. *Once one accepts that equities can underperform, then one needs to worry about starting valuations. It makes sense that when starting valuations are high, future returns will be lower than normal. *And the cyclically-adjusted price-earnings ratio shows valuations are well above average.
> 
> *The real paradox for long-run equity investing is that as more people believe that equities are the best investment, valuations rise and the likelihood of equities outperforming decreases. And that is a real problem*, given that US rules allow public sector pension schemes to assume 7.5-8% annual investment returns, virtually forcing them to hold a high equity allocation. They are very exposed to things going wrong.


Stocks for the long run?


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## Pluto (Sep 12, 2013)

^

Yep. "It makes sense that when starting valuations are high, future returns will be lower than normal."

Even Bogle acknowledged that appreciation potential was currently not good in the US recently and took some $ out of stocks. And Siegel, in Stocks For the Long Run, makes a point that buying when appreciation potential is high is a plus. Strangely it is not a very popular idea.


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## lonewolf (Jun 12, 2012)

Pluto weather or not the valuation is high or low is in direct proportion to the size of the fractal being played. The bigger the fractal the larger the valuation spread from high valuation to low valuation with in the fractal. This principal would also apply to the size of the cycle.


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## 1980z28 (Mar 4, 2010)

1980z28 said:


> Chase my liq from 12 to 6?
> 
> now at 136k
> 
> ...


Finally pass 10.00,today I see lots more yet,,will sell at 15.00


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## amitdi (May 31, 2012)

good point james4beach. but isnt that the base assumption for everyone that invests in the broader indices. that long term the world is growing economically.

another way of looking at it - if the stock market were to have poor returns in the next 20-30 years, then nothing would. that may mean a world with wars, natural disasters and what not. in that case, i would even not to be sure that my money under the mattress would be safe. and mind you even with 2 world wars, we have not yet had such a scenario.


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## Market Lost (Jul 27, 2016)

Moneytoo said:


> Ha:
> 
> 
> 
> Stocks for the long run?


In research we call this p-hacking - aka you can prove anything with statistics.


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## Market Lost (Jul 27, 2016)

lonewolf said:


> A few years back I listened to an interview of the great legendary cycles master PQ Wall. He needed to find out info regarding quantum physics for his cycles work. PQ Wall stated in the interview only one person in the world he knew of was capable of helping him because no one else truly understood quantum physics (yet they teach it universities)
> 
> Regarding the math I don't think most players are taking it far enough. Need to go past New tons law of an object staying in motion to that of sin & cosine of cycles.


Sorry, but this is just wonky logic. Quantum mechanics is not just taught, but well understood by many. Perhaps this "cycles master" only knew one person, but that is like saying that I don't personally know any astronauts, so astronauts don't exist.


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## Market Lost (Jul 27, 2016)

james4beach said:


> Do you mean by this comment and that even if the "worst case" stock return is 5% that this is still better than bonds? My counter-argument is that in an environment where bonds return less, stocks may also return less. (Example: Japan and ZIRP. Zero interest rates, like we have now, are indicative of a systemic problem and broken economy. Thus, Japan had zero stock returns, and I fear US & friends will too)
> 
> About the cherry picking criticism. The general assumption everyone seems to make is that US & western (associated) economies will perform similarly to their history -- *that* is cherry picking too. Studies on SWR are cherry picking the best market in modern history (USA).
> 
> But, we don't know how western markets will perform. I'm raising the possibility that western markets do not perform at all like their history, during the rise of the US/Canada/Europe. Instead they could perform for a long period like Japan or UK with far less returns than everyone expects.


James, just curious as to why, if you don't want to be seen as cherry picking, you don't include the country by country comparison. In Japan and Europe, you pay to buy government bonds, so any positive return of stock is better.


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## Market Lost (Jul 27, 2016)

GoldStone said:


> Ignore the data, attack the messenger. Don't let the facts get in the way of your personal religious beliefs. I didn't expect anything less from you.
> 
> Do you have any data to support your story-telling? Any data at all?


Yet, HP has an excellent point, this report uses a criteria that includes over 8K stocks that one time or another could have, but not necessarily, showed up on the Russell 3K. Which means that it would include over 5K stocks that are either not around or are now too small to include on the Russell. Many of these would have winked in and out of the market rather quickly. In other words, it really isn't relative to how most people invest.


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## Market Lost (Jul 27, 2016)

lonewolf said:


> Math is the most precise language there is. Words are empty containers with meaning we put into them, we don't always put the same meaning into each word. I don't think it is the math that is the problem with statistics it is the words mixed in with the math.


I guess you don't realize that statistics isn't part of mathematics?


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## MrMatt (Dec 21, 2011)

Market Lost said:


> I guess you don't realize that statistics isn't part of mathematics?


Matters on your definition.

"Some consider statistics to be a distinct mathematical science rather than a branch of mathematics"

Most people consider "mathematical statistics" as "statistics"


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## Market Lost (Jul 27, 2016)

MrMatt said:


> Matters on your definition.
> 
> "Some consider statistics to be a distinct mathematical science rather than a branch of mathematics"
> 
> Most people consider "mathematical statistics" as "statistics"


It's more than "some", as nobody in math would claim it is, which is why every university will have a separate department for statistics. It would be like saying that physics or chemistry are math because they use it. I think when you mean "most" you mean those who don't actually have a background in it.


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## spirit (May 9, 2009)

Hi Everyone...coming late to this thread but feel I have to add some information. Lonewolf, you state in post 25 that teachers get 20 sick days per year and can bank them and take them on retirement. I have worked in public schools in Alberta for a long time. IF I am on contract and not supply teaching, I technically am allowed 2 days per month sick leave, but all days off are closely monitored and if I have over 3 I am required to have a doctor's referral. In over 30 years, if I do not use the days, they are gone, never to return at the end of the school year. And we do not get them at retirement...they are gone at the end of the year. Thanks, just needed to put in my 2 cents.


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## twa2w (Mar 5, 2016)

spirit said:


> Hi Everyone...coming late to this thread but feel I have to add some information. Lonewolf, you state in post 25 that teachers get 20 sick days per year and can bank them and take them on retirement. I have worked in public schools in Alberta for a long time. IF I am on contract and not supply teaching, I technically am allowed 2 days per month sick leave, but all days off are closely monitored and if I have over 3 I am required to have a doctor's referral. In over 30 years, if I do not use the days, they are gone, never to return at the end of the school year. And we do not get them at retirement...they are gone at the end of the year. Thanks, just needed to put in my 2 cents.


Yes but you don't work in Ontario, the center of the known universe, so your opinion is of no relevance to any Internet discussion, dontchaknow.
Just kidding. I am also in Alberta and having lived in a number of provinces, I find a lot of people seem to think standards or rules are similiar in every province. While many are, there are often quite dramatic differences as well as you point out.


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## Market Lost (Jul 27, 2016)

twa2w said:


> Yes but you don't work in Ontario, the center of the known universe, so your opinion is of no relevance to any Internet discussion, dontchaknow.
> Just kidding. I am also in Alberta and having lived in a number of provinces, I find a lot of people seem to think standards or rules are similiar in every province. While many are, there are often quite dramatic differences as well as you point out.


Although, I don't know where Lonewolf is from, I don't think he's from Ontario as teachers here only receive 11 days, not 20.


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## spirit (May 9, 2009)

It has been my great pleasure to be a member of this forum for many years. I have learned a lot from you all and value the diversity of opinions on how to manage finances using good knowledge and to prevent being taken advantage of by the financial industry unnecessarily.

I believe that the United States, and by dint of being close neighbors, Canada have benefited greatly by having an abundance of natural resources, meritocracy where people could with hard work achieve a good life, a good educational system, a good work ethic etc and having been blessed with not rebuilding their country after WW!! have enjoyed a lifestyle that has been remarkable. My husband, a child of immigrants, became a tradesman and provided very well for our family. No tradesmen in Europe lived our prosperous lifestyle, including the immense manufacturing behemoth of Germany. 

The financial disasters of the tech bubble and the 2009 financial unraveling are, I believe, symptomatic of a weakness of the modern financial structure enjoyed over the last 50 years by the western world. Our present lifestyle is being financed by the massive quantitative easing of the central bankers. However, we are not getting the results hoped for and I think the next 50 years will not be anything like what we have known before. Trying to predict the future by only looking through the rear view mirror is not going to provide the rosy benefits that we all desire. 

I think James has made some interesting comments in this thread......and I feel that his point of doing just as well with GIC and cash versus playing the stock market is one way of looking at investing that should be a part of a diversified portfolio. I realize that buying and selling stocks is riddled with semi scientific personas that paint a calming view of financial markets that are self serving and we should always view them with a grain of salt. Over and over we have seen rock solid companies like Blackberry crumble to the dust. Highly regarded companies such as Valiant have been found to have a fraudulent black heart that has ruined many portfolios in this country. GIC and cash are at least pure investments and yes, I believe that holding onto the two as a large part of one's portfolio is worthy of respect just as much as believing in the "market"

When I was just a young girl, my friend took me to the horseraces. I met her mother's friends who showed me their systems, readings, knowledge of jockeys, horses, whether or not they were mudders or did better on a dry track. Being just a young girl, I made a few $2 bets, but kept most of my money in my purse. That is the way I feel about the stock market. Play the stocks, listen to the analysts, put some money in, but hold the majority of your money in slow but steady investments such as savings, paying off debt quickly, being frugal etc. 

The story of our market has not finished yet. The power of the western world, and the US as the driver will not wane quickly. But it will.....I think China and India are the drivers of the future and we are watching the transition in our lifetime. Well, that is my two cents worth......just wanted to cast my vote in James' direction (;


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## DavidW (May 27, 2016)

spirit said:


> It has been my great pleasure to be a member of this forum for many years. I have learned a lot from you all and value the diversity of opinions on how to manage finances using good knowledge and to prevent being taken advantage of by the financial industry unnecessarily.
> 
> I believe that the United States, and by dint of being close neighbors, Canada have benefited greatly by having an abundance of natural resources, meritocracy where people could with hard work achieve a good life, a good educational system, a good work ethic etc and having been blessed with not rebuilding their country after WW!! have enjoyed a lifestyle that has been remarkable. My husband, a child of immigrants, became a tradesman and provided very well for our family. No tradesmen in Europe lived our prosperous lifestyle, including the immense manufacturing behemoth of Germany.
> 
> ...


My grandfather was in the German army in WWI, his oldest son would later be in the Canadian army near the end of WWII. In between the two wars my grandparents lived through the German hyperinflation after which grandfather came to Alberta and worked in some unbroken land with grandmother immigrating 2 years later. I don't know much about their experience during the hyperinflation, I do have a few rentenmarks from near the end of it though. I also had an uncle from the other side of the family who flew Lancaster bombers, something he once told me was never stop learning.

When I first started buying stocks I was interested in the mining and oil and gas stocks and I also had a little bit of a tech stock... I started buying stocks during 1999 so I didn't have much money yet but did get to see the tech wreck and the collapse of my little tech stock. Investing was supposed to involve risk so I associated risk with the collapse of that tech stock, but no risk no reward so on to the commodity stocks. While 'investing' in the commodity stocks I would scour the internet looking for and reading pages on why to invest in commodities. There were lots of articles on owning gold at the time and how we were losing our purchasing power due to the printing of fiat currencies, and how fiat currencies don't have a history of lasting. I also read lots of articles on other 'investing' topics along the way.

I still associate risk with losing your money, including potentially all of it, and my association of investing still equates to getting a return. With the commodity stocks my idea of return is when I sell and get out of the stock, hopefully with a gain on my original investment. And if I don't like how a commodity is doing, either pricewise, financially, I don't like the amount of shares being issued or because it is Thursday and the garbage man missed my house, I get out of it. I still have a few smaller positions in commodity stocks and do think they are good as insurance in the event of a currency reset but over the years my thinking on how to navigate a currency reset has changed, they are still basic materials used for the production of goods, also I am older and need income so my investing has greatly shifted to dividend stocks where I do not have to 'get out' to start getting a return. I do have doubt about gold returning as a lasting prime choice in a currency event due to the necessity for global trade, in such a situation I still think commodities will be useful especially initially to buy food, until the currency situation stabilizes and trade resumes. This is also one of the reasons I like equities, one of the articles I read along the way was about/from someone who lived through german hyperinflation and the advise given was to be a producer... of something... to trade.

I am suspiciously fairly certain that stock market valuations are higher, and sometimes much higher, than what the company would be valued at if it was sold privately and this I consider 'the premium' for being able to 'get out' quickly. The vast majority of companies are not listed on an exchange so I figure the two main reasons to list on an exchange are to raise money to grow or because they want to get out themselves and are looking for a diversity of buyers. I usually like to wait at least a few months to see how the market treats a new listing. I have had a few stocks, and one non-listed corporate bond go to zero on me, there is always risk so I do believe in trying to spread the risk across investments.

I do not restrict myself to just the dividend aristocrats, I do have many of them as they do have a very good record of being shareholder friendly with dividend increases and earnings reliability. The higher yielding stocks have found a place helping out with leverage control and I don't expect much price appreciation or dividend growth, if any, from them. The lower yielding stocks often have very low payout ratios and appear to be shareholder friendly, hopefully the earnings they retain are put to good use and realize that growth, if they do not realize growth in earnings per share I do not expect a growth in price per share. Some of the low yielders also just look like good businesses with not much growth potential but nice consistent earnings, I don't mind these either - I'm thinking ok they might not grow earnings very fast but if they don't have anywhere to invest the money the earnings should accumulate until they do find a use for the money, anyway I have a few of these companies also.

As for the low GDP growth world we live in and the QE programs we see countries doing. Well I don't think my purchasing power for the things I need is keeping up with the stock dividend growth rates so I will need to maintain a re-investment component to my financial plan and at the moment that re-investment component needs some work. I'm thinking not all my investments can grow their dividends so better re-invest some of those dividends. For now anyway that is going be limited to Canada and the US. I had one foray into an 'investing presentation' which took most of a day to agree to terms on for an asset which was being negotiated by an external sales company resulting in the sales agreement not fitting into pre-fabricated forms with very unreasonable footings, leading to 4 months of almost daily negotiations and then a phone call with the product manager himself resulting in a new fabricated form with a much better agreed upon footing for a product producing a return very different than the one I originally negotiated. I hope they have since changed their workflows, eliminated those old unreasonable footings and reviewed with the sales company and others, what is doable and what isn't as I still think the structure of the original agreement has potential.


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