The graph is of "real" returns not "nominal" returns.

And the real returns are somewhere between zero and negative. What, precisely, is your point here?

Because mine is that negative real returns equals a **** investment. Are you disputing that?

People generally are less than 100% long, so I will grant you that. It isn't 1999 (thankfully)

Stops are for idiots. They ONLY lead to being whipsawed. If we have a 10% correction tomorrow, I am selling a kidney. There are ways of increasing your long-term returns, but that involves realizing that you are in a secular bear, not in putting in stops.

Ummm. No. If implied volatility was lower than realized volatility, then it would be a good idea. The option smile makes this a fool's game.

Quite fine if you are the market maker or if you just like ritual bleedings.

Wat?!? I trade VIX futures and ETFs and ETNs. Being long VIX futures or VIX futures options is like catching your dick on fire to prevent AIDS.

More D- efforts, although you have reached a level of wordiness where it's not worth dealing with. So, uh, you win in a way. Yes, insurance costs money. No **** Sherlock.

Have fun with those negative real returns. Remember, the more you buy the more (negative) it returns

The "real" returns are inflation adjusted. They are above zero. They are, in fact, if you run the numbers, well above zero on a 20-year basis. That is what "real" means; it means "inflation ****ing adjusted." "Nominal" means "not adjusted for inflation." How can you even afford internet access without knowing that?!?

The expected inflation-adjusted expected 20-year return on the S&P 500 is positive. Your slightly outdated graph shows that.

Using equivalent methodologies bonds, gold, silver, USD, real estate, cheddar, oil, bitcoins and artichoke hearts all have negative 20-year expected inflation adjusted returns.

Good luck with not knowing that "real" means inflation adjusted and not knowing how to analyze the data or read a graph that someone else made.

You've got it totally confused. A negative real return means LOSS OF BUYING POWER. What Shiller is telling you is that if you take your money and buy stock today, sell it in 2034, and use the proceeds to buy shoes you will expect to get fewer shoes than if you just bought them today. That's not investing. It's losing with a side order of variance.

From D- to F in one post. Holy crap.

My God are you confused.

The ****ing expected real return is positive at a pe10 > 25.

No it's not. Look at the damn chart. The chart is below zero. Real returns are LESS than nominal returns.

F.

Do you even understand the difference between "real" and "nominal?" <trying to speaking slowly and quietly yet failing> One takes ****ing inflation into ****ing account!!!</trying>

I am actually concerned a bit that you were paid by my ex-wife to get an aneurism to burst for insurance policy reasons. (if so, nice try, honey.)

Thx :-)

Newbie investor.

I've got a swag of the classic books to read and generally understand the value investing principle that a business is worth it's future earnings discounted back to present value.

I'm using a few DCF calculators online that help me shortcut the maths, but I'm currently looking at a newly listed company that isn't yet making a profit so EPS is negative.

Do I have to basically forecast each years revenue and then calculate when the EPS hits a positive figure - from there I can estimate the growth rate and discount back?

Below is the stock I'm looking at and my thoughts (if anyone is interested) it's a beer company trying to become New Zealand's export beer into USA.

https://nzx.com/markets/NZSX/securities/MOA/

It's sank nearly 50% since IPO but the story I believe has actually improved - they screwed up initial distribution and have now corrected it - meaning they missed sales targets in their current main markets - but not their target growth market this increase 4 fold. They'll probably miss again this annual report in relation to the change in distribution.

More or less. Of course you also need to discount the future losses between now and then.

Also be careful - earnings paid as dividends can be counted in full, but retained earnings should be additionally discounted. The new businesses entered with those funds are typically worse than the existing business and underperform.

Edit: also, don't forget tax adjustments. Either corporate retained earnings tax for retained earnings, or your personal tax rate for dividends.

Do you have any evidence that this approach provides a better return than just staying invested? After taxes, trading costs and time out of market I suspect you would be one of the many investors that earn less than the market return.
http://www.qaib.com/public/default.aspx

http://www.pomplanning.net/dalbar2013

Yes. It's provided substantially superior returns for the entire modern history of the stock market and the difference is very statistically significant. Test it for yourself if you're curious.

Here's the 2002-2012 period, which is roughly when I traded it.



Performance to the right of that has been good (+30% or so) since it's been long the entire time.

I've done some cursory reading about Sharpe ratio and Markowitz efficient frontier. I'm not too interested in it since I'm convinced partial Kelly is superior. However, I'm curious about the following.

Suppose there are 3 uncorrelated simultaneous wagers A, B, and C.

With A you have a 10% chance of winning and 15:1 odds, so an edge of 60%.
With B, a 50% chance and 3:2 odds, so an edge of 25%.
With C, a 1/3 chance and 3:1 odds, so an edge of 33.3%
Each wager is either win/lose, no pushes.

Your bankroll is $100. According to the mean-variance model, how much of your money should go into each wager?

I have about $90k in a US Government 401(k)-type plan called the "Thrift Savings Plan (TSP) ". This is from when I used to work for the government. I cannot borrow from this account because I am not a current employee.

I only have about $15k for a down payment on a house.

If I want to buy a house for $150k, should I rollover the TSP account to a new 401(k) then borrow for the down payment? This would allow me to avoid PMI and get better terms by putting 20% down instead of 10%

Just do the Kelly thing - maximize the expected logarithm of your bankroll.

I know, but I'm curious to see what markowitz says for comparison.

I think I see now -- markowitz doesn't say how much of your BR to invest. You can achieve the same maximum sharpe ratio regardless of how much you're investing in total. So markowitz only tells you how to allocate your investment (among a set of picks) once you'd already decided how much to invest total.

For the example I gave, I wrote an R script to brute-force check the integer solutions for the highest Sharpe ratio.Answer: if you know you're investing $100 in total, then it says to invest
$36 in A
$38 in B
$26 in C
for a Sharpe ratio of .37

Whereas Kelly would allocate a significantly smaller amount to A since it's a longshot.

If I'm wrong about anything I said then someone correct me.

Edit -- oh, I guess IRL, you also have riskless assets available and so you'd invest your entire BR and allocation would be the only question. I'll add a riskless asset D to the example and see what happens.

Edit: asset D = 100% chance of gaining 3% return

Answer: if your BR is $50, you want it to be (1, 0, 0, 49)
sharpe ratio of .2655 (I'm surprised it's so low)

Kelly would probably subtract some from D and put some in B and C.

The problem is that Markowitz assumes a normal distribution around your expected value whereas the assets you have lined up have very much non-normal properties

This.

So is markowitz pretty much a thing of the past or does anyone still use it? I read somewhere that Markowitz himself liked the idea of Kelly criterion.

Yes it used all the time.

Kelly fulfills a different objective. Kelly maximizes long term growth of a bankroll. Markowitz maximizes risk-reward. Also Kelly does not account for correlation of returns.