and if you had the dow since 1990 you'd have far more. 1980 even more. 1970 a bit more.

you do your "calcs" from any of those dates and you would have made more money than your calculations indicate with no exceptions (i.e. dow returned more than 3% net of inflation in any of those longer periods).

so again, what exactly is your point?

are you saying that stocks didn't meet the 3% per year net of inflation benchmark from 2000-today? if so that is painfully trivial and obvious. does that mean that stocks will continue to underperform the ~6%/year average compound return benchmark into the next 20, 30, 40, 50 year period? highly unlikely.

if that wasn't your point, what is?

Barron

wow. you are either mislead, misleading, or both. you have neglected dividends and reinvested dividends. and your concept of "lost" and the time period your are talking about are LOL.

Barron

I'm just responding to desertcat saying the dow is up since 2000. it's not. it's down, and down significantly.

1) it is down in real terms since 1/3/2000 (11,357.51) (current price 12,361.32) base solely on adjusted close prices.

2) dividend yields have been 3.06% on average over that period. however, that is not the correct way to calculate total return. dividends pay a % earnings in cash. not all dow companies have equal earnings. you should take the % exposure to each company over each year (Wi(t)) and multiply that by the ratio of earnings that each company contributes to the index over each year (Ei(t)) and then multiply that by the dividend yield for each company over that period (Di(t)). that would give you an exposure and earnings weighted average dividend yield which is what you'd actually get each year by investing in the dow. since i don't have that data, i guess the avg is about as good as any. the average is right around realized inflation so the real return of the dow has been about nil.

3) the dow has not lost anywhere close to 21%. that calculation is misleading and wrong.

that is all.

Barron

ok, nil for last 8 years sounds about right.

ok, how much has dow changed since 2000 in real dollars?
11.3k in 2000 dollars
12.3k in 2007 dollars

whats the change?

Barron,

I havent been following this thread closely..... but how does ANYONE come up with these figures/percentages and actually think they are accurate/realistic?

Stephen

the formula would be:

Real change = price change + dividend gains - inflation.

Price change = .0041% compounded (i have the raw adjusted close data and calc'd the compound avg annual rate of return)

Dividend gains ~= 3.06% annual

Infation ~= some % depending on where you take it from. say since CPI-U underestimates it we agree on 4% over that time period (which is generous).

so the avg annual change over the period = .0041% +3.06% - 4.0% = -0.94%

i think that is a shade better than your crazy 21% lol.

Barron

we only need to save money for when we can no longer work and for any emergencies or to aid raising a family.

lets say this means we need to take away 10% of our annual salary for our pension and another 10% for raising a family

lets say we also spend 60% on living expenses, holiday etc.

so what do we do with the other 20%? isnt it sensible to risk that with high risk-high return investments such as gold, because you dont in theory need this money anyway? whereas you could make enough to seriously improve your living standard by upgrading to a new house in the times the high-risk, high-return pays off.

the idea of investing for 20+years with excess money (money not invested for pension+raising family) seems pretty pointless, as we dont need to save the money anyway. you'll experience almost the exact same utility day to day if you had the money invested or if you didnt. therefore, this excess money invested will in reality be worthless. imo you should be spending this money as you go along, not saving it just for the sake of saving it.

other than spending it, i think we should be using this excess money (net of pension and living expenses) to try and allow us to retire earlier by high risk, high return investments.

meh, i just think sometimes you need to draw a line at saving, and work out how much you need to save to be very comfortable when your older, and take risks or spend the rest on having fun.

(not saying anyone here doesnt, or that this is right, just i dont understand this frequent emphasis on effectively having money, only to put it away for say 40 years so that in 40 years you can enjoy it).

edit: dont quite know what point im trying to make here, basically once a long term portfolio for retirement and family planning is up and running, from then on we should be looking for potentially good short term investments like gold. so sure, the stock market is good for pension+family planning money, but we should be looking at short term investments as well with the excess money. so gold would have been a good investment for this excess money, not the stock market.

on average you will have a FAR better shot at "retiring earlier" if you take that 20% and earn a constant 8-10% return on it w/ low volatility than swinging for the fences by risking it in high risk/high return investments. if you want larger absolute returns, invest that 20% in equities overall and gear up your portfolio towards that. but don't try to beat markets. you say you "don't need that money" and shoudl thus risk it to retire early. don't you see that if you DONT RISK it foolishly you will have a HIGHER PROBABILITY of retiring "earlier" ...

further, if you think gold is a high risk/high return investment on average, you are mistaken.

you aren't grasping the concept of investing, beating markets etc.

there is little more i, or anyone else here, can do fo ryou.

Barron

well ok, thats about -1% PER YEAR, which includes dividends, which I admit I didn't talk about.

so with dividends, DOW is down about 8% in period 2000-2007?

seriously I'm not being a jerk I really would like to know.

but back to my point, the DOW is a price composite, right?

in inflation adjusted dollars, the DOW (price of stock) is down 21% from 2000-2007. is that right?

I mean I realize the price of the stock is not the whole picture.

let's take a simpler exxample in case I don't understand the more complex.
an individual stock was 100$ jan1 2000, and 108$ jan1 2008. in inflation adjusted dollars, what was the price change in the stock ? according to my calcs -21% based on 3% inflation.

in real terms yes.

Barron

ok, so as an investment, DOW was -8% ROI from 2000-2007,

and

price of stocks in DOW were -21% in same time period.

first, it does't work like that. there is compounding.

that stock earned .97% per year from jan12000 till jan12008.

(1+.08)^(1/8)-1=.97%

the stock lost .03 per year due to inflation. so net per year it lost .03-.0097= 2.03 %.

starting at 100, after 8 years, losint 2.03% pear year, the stock is priced at $84.84 for about a 15% loss.

again though, you have not calculated any dividends which pretty much negate inflation and you end up with about a 1% per year net positive return assuming divs=inflation.

Barron

no.

Barron

ok so DOW lost 15% of its value from 2000 - 2007.

that was my point.

that point is pointless. price is only one aspect of total return. dividends are a hugely important portion. it appears that you are trying to say something or make a point to fit a bias you have and neglecting reality and the facts.

who cares if the price of the dow fell by 15%??? or 25% or whatever??? the HOLDER of that security still earned money from dividends (or lost relatively little compared to the 15% you are trying to prove).

it makes absolutely no sense to talk in "real terms" about "nominal price changes" ... do you see that? "real terms" means what a holder of that security would have earned over that period. neglecting dividends negates the point of talkign in real terms.

Barron

well it means the investment community thinks the company is worth less, if the stock price is going down in real dollars. true/false? falling stock price means company worth less.

the DOW stocks are worth less today than they were in 2000. another way to look at it is that they are cheaper to buy today than they were in 2000. a DOW index.

Barron

As you know I HATE dabates/arguments with a passion(and we have had our fair share of them...lol).But I must say I applaud your patience more than you will ever believe.I would have imploded at this stage

I never thought starting this thread would lead to this!

GL,
Stephen

false. REAL changes are only useful to express differences in real things. nominal price changes shouldn't be compared in real terms w/o taking divs into acct.

true.

true.

Barron

well just to tie it into the thread, I mean from 2000 DOW has been breakeven (if you include dividends), and gold has nearly tripled in price. oil has tripped too.

so that should say something about our recent era.

Nah, I think the role of moderation should mostly be to remove spam/off-topics, and to occasionally ban people if appropriate. The in between may as well just be left alone imo.

OK, first let me try to explain things better, regarding my perspective on all this.

EDIT: This ended up being really long. Also I got high when I proofread it, so I can't respond to your points now. I promise you I will though, I saved it to a word document. Please read this though if it holds your interest, I think it is sort of important and does more justice to why I agreed to our bet:

I'm not trying to be confrontational with this -- I'm just trying to honestly explain my perspective, in case anyone is honestly interested. So hopefully it is useful to you.

I believe humanity's application of economics is in its infancy. Right now our collective judgment is clouded by the stubbornness to let go of power. (An honest application of economics, imo, would demonstrate that there was no role for government or for power over other human beings.)

I believe strongly in free market capitalism and the principle of non-aggression, and therefore I believe that straying from these principles begs a tangible economic consequence. (I'm not opposed to theft, for example, because I get a kick out of being opposed to theft or because God supposedly included it in the 10 commandments -- I recognize there is tangible economic incentive to cooperate, and theft carries a very real consequence.)

Therefore I believe that straying drastically from these principles begs a destructive consequence. Yet, most people (either expressly or implicitly through their actions) reject the value of non-aggression.

Most people, in my view, are therefore misguided at their core. (This isn't "my" subjective qualification of others. It's just an obvious extension of the principle -- if you believe non-aggression is the highest ideal and the most rational and productive way to live, and you notice that most people accept a life of aggression, then you therefore believe most people are not living rational and moral lives.)

We live in a culture of violence. The state is violence. When I get a letter telling me I owe taxes, that's violence. That's "you must give me your property, because I want it for something else, and if you don't listen there will be further consequences." Most people support the state. Most people do not see themselves as violent people. Therefore, in my opinion, they live a lie. And it's so important to understand that about people. Their actions are evil, which is why their thoughts become a lie.

Either the state is not violent, or the people who support the state are not good people. It's one or the other, right?

So from my perspective (and you're of course welcome to disagree if you think the state is not violence or that violence is not economically destructive or whatever), everything these people believe and everything they are -- every insight and observation about human interaction and the natural world that they have -- is compromised by this aspect about themselves that they can't possibly explore honestly. Because if they did explore it honestly they would have to admit they're standing in blood. So, subconsciously, their brains are stuck confirming goodness where it doesn't necessarily exist, and this inevitably clouds their comprehension of reality.

The state is really good at deception of all sorts, particularly when it comes to hiding the costs of war. They need to be good at this, because if you got a bill for $1000 every month (or whatever it would be) to pay for a war, or if the economy naturally recessed to correct the wasted and mis-allocated resources, you'd be way more likely to resist. Yet, if you look around the US for the past decade, things might be hurting a little bit, but certainly no serious set back. (The burden of war needs to be hidden or the people would just say enough, but that doesn't mean the sacrifice has been magically averted. In this case the buck is passed like something of a hot potato, and patched together until the problem can't be patched any longer and the consequence finally manifests itself. This highlights a knock against the tyranny of the majority (i.e. democracy) that monarchy and dictatorships don't have for them -- its rulers are motivated by short-term solutions to problems, so while they're pillaging the public they don't even have your long-term viability to restrain them.) I'm not gonna dwell on the costs of empire, but being interested in this stuff and in tune with what I would defend as the truth helps me, I believe, to see the big picture more clearly.

If I was looking at the financial data the way you look at, I wouldn't have any idea how to sift through it and make an economic forecast. You have the ability to analyze it from the ground up, and within that you (I'm guessing) assume "America" to be a viable idea. (And you of course have a vested interest in US financial success.) I see America as an empire bogged down by the costs of war, and I see a severe decline in our standard of living as an inevitable result of it. Empires always end, because aggression against fellow man does not work in the long-run. (Thanks, natural order.) They collapse for economic reasons because war spreads them too thin, and they are forced to finance it through inflation. It's the last kick of heroin before you say hello to the tulips.

So I'm connecting the dots within the idea that a collapse is inevitable (at least, if we didn't change our course), and you're connecting them within the framework that a collapse of the United States of America is an extremely strong claim.

We're directed by our world views. You could call them biases, but I would offer that my "bias" is in the sense that I'm loyal to the truth. (I'm happy to debate the philosophy of non-aggression -- and defend why I believe it to be so valuable. But my point here is simply to explain how I see my broader philosophy giving me the confidence I have in what you see as a strictly economic discussion.)

The things we do as a nation, in my opinion, frankly do not work. They're not the hallmarks of rational economic behavior. If I see a country who is in debt, who is at war, and who runs an empire with 700 military bases worldwide, (and who is developing a growing appreciation for socialism, no less), my first reaction is certainly not that this is an economic behemoth ready for years of prosperity. America's former glory can only hide this sham for so long. The burden of proof, I think, should be on the person who wants to explain why this behavior will *not* collapse and end in economic ruin if gone uncorrected.

It isn't that I think I'm "smarter" than other people because I solved a puzzle and they can't figure it out or anything like that. The puzzle itself isn't complicated. (The idea that violence is destabilizing is not an idea most people would claim to disagree with -- and it's one that our moral instincts accept every day, any time we seek a voluntary solution to solve a problem, i.e. realizing you're hungry and paying $5 to the deli for a sandwich.)

It's just that the mechanism of it all has most people in a sort of trance where they see the widespread violence and coercion in their lives as not necessarily going hand-in-hand with a devastating economic consequence. Where their moral instincts see a difference between what they do themselves, and what they advocate other people to do on their behalf. As if the latter does not bring the same burden.

They might know everything there is to know about playing basketball, but they'll inevitably make some mistakes if they don't process the core reality that they're playing on ice rather than hardwood. As long as I'm honest with myself and in touch with natural human morality, there will be times where it might be easy for me to recognize things that most people find stunning. (This suggests nothing about me other than that I'm honest with myself. I'm not conflicted by having to repress the dishonesty in my life when forming critical assessments of how things are.)


You're probably sick of my analogies by now, but this is basically how I see it (and the post is almost over, I promise): You and I live in a village, and everyone drinks soda. Aliens are in charge of the village. They tax us and they make laws that we have to follow, but they protect us and they give us soda. Soda, they tell us, makes us healthy and strong. They're very good at making us see that soda is good for us (since after all, there are more of us than there are of them, and if we didn't think we needed their authority, we'd resist). And often our village-mates might have a lot to gain by advocating the same set of misinformation. They get on the good side of the aliens with the guns and power.

The alien regime can not exist without misinformation. The dietitians and nutritionists in our village mostly all advocate the use of soda. Some of them maybe sort of sense that it's wrong, but they know their career depends on it. Most don't even make it that far; they just are caught up in what they're doing and accept all the things they're taught that connect the dots in a way that shows soda to be good.

Now, after 20 years of drinking soda every day, I see this wise man in our village talking about how awesome broccoli and orange juice are, and teaching me about the principles of nutrition and why soda is actually really bad for me. I allow a new set of first principles into my mind, and they make perfect sense. It isn't: "I've been told this, so therefore...", but now: "Reason and evidence show this, so therefore...". And then you begin to see the aliens for what they are.

Now, I'm not an expert in nutrition, but this person I found is a good teacher and a good person to ask for advice about what else to drink. He has, I believe, the advantage of natural truth on his side. (Sugar water with some chemicals just is not good for you, even if the aliens say it is.) All I need is to have a clear mind that doesn't starve to confirm the overarching belief that soda is good, and I should be able to be convinced that soda is bad way more easily than that it's good. And when you're thinking for yourself the best decisions you make are probably in who you trust. It's not that the science of nutrition is so simple that one can absorb how it all works so easily, but I have to make a decision one way or another -- I have to drink. So certainly I'm going to drink what seems most reasonable. I might not be able to defend my position as well as the pro-soda expert dietitians can defend theirs, but it doesn't change the fact that they're on a track to diabetes and I'm not.

The idea that soda is good for you is ultimately a losing hand. Evidence will constantly present itself, and the aliens will have to counter the evidence with misinformation if they want to maintain their power. The people who have a vested interest in the idea that soda is good for you do not want to give everything up and relinquish the artificial advantage they earned through the exploitation of alien power. This is one reason, I guess, why empires eventually need to inflate the currency -- because the machine to feed just keeps getting bigger. People who want to benefit from alien power rather than resist it will have to bend their outlook as time goes on -- "bottomless soda is great for all people in all circumstances" won't make sense against evidence that will naturally present itself -- "ya, it can be bad sometimes... but the key is moderation... you obviously can't drink it all day but you certainly need some alien-soda or your body will fall apart," yadee yada.

And that's somewhat where we are today with economics, imo. The idea that capitalism works and socialism, tyranny, and aggression all fail is, I think, clear. All you have to do is look at China vs. Hong Kong, or China now vs. China before they opened their markets. The dominance of the old USA. The collapse of the USSR, and the living standards in any dictatorship. I mean, it's clear to most reasonable people that capitalism works. But most people don't want to admit that they can't truly be capitalists and also advocate the restriction of smoking one thing but not another. You can't be a capitalist and authorize someone else to steal money on your behalf, even if you're convinced you have a good reason for it. And certainly you can't be a capitalist and advocate war. People who stand for violence don't want to admit that they stand for violence. People who have insecurities don't want to deal with them. And people who are fed by the power of the state don't want to give up the meat. They're standing in blood and they don't want to let go. So, the world is what it is. A minefield of misinformation. The truth can't exist in your head if it's absent in the way you live.


So, my thoughts on the strictly economic aspects of the US are just a small piece of a bigger puzzle. (And again, if you're interested, you're welcome to debate the merits of my broad philosophy.) And my interest in reading this forum is to become more versed in this specific subject matter, for a number of reasons, but mostly so that I might be a more effective communicator of these concepts to my friends and family who have a lot to lose by not understanding that disaster is imminent. (I doubt I'd be able to convince my brother not to lust the brown man's blood, but it's possible I could at least convince him to make a wise investment.)

The way people have reacted to me on here really is interesting to me. You can say it's that I project too much confidence in the things I say, which is fine if you think that. But is that a reason to insult someone? You can say I don't know enough about economics. But again, that doesn't seem like a sane reason to be annoyed with someone and attack them. Like I said before, trolls run free often enough, and no one gets angry and insults every stupid or uninformed post on here. So there must be something else. It must have to do with the nature of the discussion. You can then create this weird sort of vague like "Oh, well you occasionally go into 'teach' mode and, uh, we don't appreciate that very much when you couple it with your smaller knowledge base, so that's why I can sort of understand it if other posters go out of their way to call you a moronic crack pot (or whatever)" type of thing. And you (I don't mean 'you' personally -- I mean this is the fairly standard reaction, if you analog it to life in general) will sometimes think nothing of the initiation of the attack, and instead focus your criticism on the person who is under attack and why they maybe deserved it. Your mind wants to assume the attack is legitimate and then look for reasons to justify it, because that's how we're conditioned to think in a culture predicated on violence. The person thinking for himself will be under attack as long as most other people fear the truth.

At the end of the day, I don't wish bad on anyone. I certainly don't *want* the US to collapse. I try to rid myself of all propensity towards collectivist thought; but still, I was born here, and I guess I do still have some attachment to these imaginary lines. I have friends and family who will go broke. I certainly don't *want* this to happen. A lot of the "strength" with which I supposedly make my claims is probably, in part, a function of my frustration with all of it. I'm fed up with the government's involvement in my day to day life, and it's reached the point where people I care about are gonna be totally screwed by it. It's gone from talking about things in theory to seeing the consequence spank us in the flesh. And even if I don't know the exact arguments that might satisfy an expert economist (in the same way I might have a hard time in a formal argument against a professional district attorney who believed the War on Drugs reduces crime), I still feel utterly confident in what I see coming, which is ultimately because I am confident in the merit and the goodness of my values.

I realize this is a finance forum, so I realize the point of it is to discuss finance rather than the underlying psychology and philosophy or whatever. So I won't make posts like this one in the future. I realize also that the point of this forum is to apply economic rigor, and not gloss over things because you're really interested in someone's broader biases or whatnot. So if I choose to keep posting here I'll do my best to learn and discuss things in terms which are most conducive to economic discourse. The more thorough the points, the less fuses go off I guess. But hopefully this explains where I'm coming from, and even if you don't agree with me about the role of govt, maybe some of this makes sense.

Of course this is entirely off-topic, as is my reponse to you.


This reads like a political speech or a religius sermon. Statements of your personal beliefs do not constitute evidence or logic and are not explanatory.


You're using one word to mean several different things (and this allows you to say anything about anyone - for instance, you may say, he's a capitalist, his products are not free, so he's against freedom). When people say they are not violent, they do not mean they are against threats of physical aggression that enforce social norms. Most belief systems are far more nuanced and they must be in order to address the complexity of human life. Nor are all belief systems axiomatic in nature. All subsequent statements you make are all complete logical leaps - I don't know how you go from hypocrisy to evil. Evilness is a normative judgment that has no meaning outside of your subjective reality.


This is a false dichotomy. I see this sort of convoluted logic often in political philosophy and that may be because it tends to attract the dullest of all ambitious human minds. None of the terms you use (the state, violence, "the people who support the state," good, evil etc) are well-defined and the conclusion you draw do not follow from the premises.


All political extremists (marxists, anarchists, islamofascists, etc, etc) seem to have this idea that some part of human behavior is evil, unacceptable and must be changed to something better. It's easy to find examples of what most people would agree is "bad" in human societies and they somehow blame everything but the human nature for it, despite the fact that nearly all societies have problems of some sort. And they don't think in terms of: what would be a sustainable system in which those bad things are minimized - they always of think in terms of, who's to blame for these bad things and how do we get rid of them? So they direct vitrol their against the blameworthy (whether they be capitalists, governments, infidels, jews, or paper money) and fantasize about the world without them, but consistently missing is any sort of careful consideration about creating a stable system other than wishful thinking. The result is that nearly any time extremists get their way, the bad is replaced by the worse.


Name one capitalist society with unlimited personal liberty. You may pretend that you're on the side of "capitalists" but the rhetoric you're using comes straight out of the Marxist handbook. On some level, all extremists are similar in that they don't want the compromise that comes with dealing with reality.

That capitalism "works" has absolutely nothing to do with personal freedoms and moral superiority and everything to do with pricing efficiency and dynamic capital allocation. The efficiency gained, however, in any society, however must be balanced against the social and political acceptability of the outcome.


It's more that you're attached to your notion of fairness and principles that you fail to recognize that it's entirely normal (and in fact inevitable) for people to try to take advantage of any human organization for their own needs and politics, whether in a small town school board or in the UN, comes down to compromising between conflicing sets of interests between individual entities with unequal powers. That you've replaced the conventional moralistic rhetoric with your own doesn't mean the latter has any more relevance in the real world than the former - it's just another form of doublespeak.


It's impossible to learn, if your mind is already made up. And your argument for the collapse of America boils down to: it does things that contradict your idea of what is consistent with the ideals of capitalism. Given that capitalism works not because of its ideals, but because of its practicality the claim is self-evidently ridiculous. In fact, one can easily show that central planning is just as efficient as capitalism, if only you can figure out the price of everything.

do you ever consider that those that force control in the name of "stabilization" are the extremists so far as their Banach-Tarski style attempts to make more with the same are occurring (i.e. keynsenism)?


the reality is that people have different wants and conflicts may arise whenever there is scarcity. The question is what is the most reasonable way of dealing with these conflicts if you're referring to optimality.

social and political acceptability are subjective and therefore rooted in individual subjectivity. The "balancing" you mention should account for this.

just because someone enjoys depressions or a less efficient distribution, etc. doesn't mean they can impose that view on others. Similarly just because someone enjoys a capitalistic society doesnt mean they can impose their way. Kibbutzim can exist side by side to a raving capitalistic city without any contradiction to free market principles. There is a market for government and this is the most efficient way satisfying peoples needs for this service.

Move to politics please