A thought on historical investment returns

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Family Oaks
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A thought on historical investment returns

Post by Family Oaks »

I remember a while back I listened to the audio version of The Richest Man In Babylon and I can’t help but recall (if I do recall correctly) the mention of a return on investments that was 6%. That’s had me thinking since I heard it, if the information deciphered is accurate, and the average return on investment then was 6%, then the long term norm we enjoy today being around 7% isn’t that far off of the returns mentioned in the book. I would find it extremely interesting if information from through the ages could be found that would give us a much longer frame of reference.
I am curious of those of you who may have read or listened to this book recall the same as I. In my opinion it’s investor emotions that make up a majority of volatility, and then the basis of long term norms being a result of the need of society to fulfill wants and needs.
Contentment makes poor men rich, discontent makes rich men poor. -Benjamin Franklin
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firebirdparts
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Re: A thought on historical investment returns

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This is the subject, I believe, that got Bill Bernstein started as an author. Only as a historian, not fiction. P t Barnum wrote a colorful book called “the art of money getting” which is closer to contemporary with “Babylon”

Bernstein was the first person I ever read who commented on interest rates over thousands of years.
A fool and your money are soon partners
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patrick013
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Re: A thought on historical investment returns

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Family Oaks wrote: Wed Jun 23, 2021 6:27 pm I would find it extremely interesting if information from through the ages could be found that would give us a much longer frame of reference.
The oldest thing below goes back 200 years looking at stocks. The 500
market portfolio isn't even a century old so the older entries are mostly
shipping and trains and a few trading companies.

Historical U.S. Stock Market Returns Over Almost 200 Years
age in bonds, buy-and-hold, 10 year business cycle
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Family Oaks
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Re: A thought on historical investment returns

Post by Family Oaks »

I need to do some reading on Bernstein’s publications. I’m probably going to start digging around on google to find what I can about very long term average returns. The funny part about that data is when it literally has to be discovered by archaeology first.
Contentment makes poor men rich, discontent makes rich men poor. -Benjamin Franklin
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SimpleGift
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Re: A thought on historical investment returns

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Family Oaks wrote: Wed Jun 23, 2021 6:27 pm I would find it extremely interesting if information from through the ages could be found that would give us a much longer frame of reference.
A few years ago, we had a Forum discussion topic that collated all the known historical studies of stock and bond returns, going back the 1400s. See this thread:

The Deep History of Stock and Bond Returns


Not sure how helpful any of this is to a modern-day investor — but I do share your intellectual interest.
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Family Oaks
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Re: A thought on historical investment returns

Post by Family Oaks »

SimpleGift wrote: Wed Jun 23, 2021 8:30 pm [quote="Family Oaks" post_id=6082811 time=<a href="tel:1624490874">1624490874</a> user_id=170024]
I would find it extremely interesting if information from through the ages could be found that would give us a much longer frame of reference.
A few years ago, we had a Forum discussion topic that collated all the known historical studies of stock and bond returns, going back the 1400s. See this thread:

The Deep History of Stock and Bond Returns


Not sure how helpful any of this is to a modern-day investor — but I do share your intellectual interest.
[/quote]

I’m definitely going to go through that thread you posted some more. The 1400’s is definitely a good ways back, but I’m curious as to returns going back to B.C. times. It’s like the saying “the more things change, the more they stay the same.”
Contentment makes poor men rich, discontent makes rich men poor. -Benjamin Franklin
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firebirdparts
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Re: A thought on historical investment returns

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Interest was definitely charged in the ancient world, but I haven’t ever seen any rates quoted in things that I read.
A fool and your money are soon partners
seajay
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Re: A thought on historical investment returns

Post by seajay »

patrick013 wrote: Wed Jun 23, 2021 8:10 pm
Family Oaks wrote: Wed Jun 23, 2021 6:27 pm I would find it extremely interesting if information from through the ages could be found that would give us a much longer frame of reference.
The oldest thing below goes back 200 years looking at stocks. The 500
market portfolio isn't even a century old so the older entries are mostly
shipping and trains and a few trading companies.

Historical U.S. Stock Market Returns Over Almost 200 Years
Issac Newton was made Master of the Mint (Chancellor of the Exchequer) in 1699. In that role he set the fixed peg rate of gold/money that remained much the same for subsequent centuries. When money was pegged to gold the tendency was for broad 0% inflation, but with interim spikes in inflation/deflation. Most businesses were private but where bonds may have been issued. Interest rates on bonds were in effect the real rate of return. Lend to the treasury in return for some interest and later that would buy back more ounces of gold than you held before, was like the state paying you for it to securely store your gold.

Periods of high inflation tended to cluster with high deflation, as such bond interest in real terms was volatile. Here's some detail going back to 1311 https://www.bankofengland.co.uk/working ... -1311-2018

Stocks appeared in the 17th century - high risk/reward where others could buy into a share of the ongoing business or into specific ventures - such as bankroll high risk voyages for spice trades/whatever, somewhat casino like bets. As such 'investors' up to the end of the 19th century were more inclined to hold bonds (lend money), where the safer the borrower the lower the interest rate (real rate of return).

Nowadays safe bonds no longer yield the 4% real rates of old (and maybe 8% real from corporate bonds i.e. given broad 0% inflation whatever interest rate was paid/received was effectively the real yield), and instead investors are now paying to lend (negative real yields). Stocks are still speculative, the typical stock lags the broad average, because the broad average is uplifted by the right tail/good case outcomes. If a seven foot giant enters a room containing nine other six-footers 90% of the individuals are below the average height of the people in the room.

I guess of old that with greater money concentration, more relatively poor, that investment rewards were relatively high compared to nowadays where more having money/savings compete for a slice of the cake such that the rewards are bid down to the lowest common denominator.
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