Tuesday, June 28, 2005


If we all get rich, who will mow my lawn?

Another thought provoking column by Robert Shiller. Here's another way of looking at the same point. If the return on stocks is 6.9 percent per year in real terms for the next 60 years, $1,000 today will be worth (in today's money) about $55,000 sixty years from now. That's a factor of 55! Yet, if GDP grows at a real rate of 3 percent, then the economy will have grown by less than a factor of 6. Even if GDP grows by 4 percent, which would be spectacular indeed, GDP in 60 years will only be 11 times higher than today. Now remember, GDP is the value of all the goods and services produced in an economy. But if stock market wealth were to grow much faster than national income over a prolonged period of time, then eventually we would all want to buy more than the economy could produce. Unless one thinks that the trade deficit will swell to an unreasonable size, the only conclusion that one can sensibly draw is that 6.9 percent is way too high to be realistic.

Not really. The "market" growing by 6.9% implies that INDEXES grow that much. This is entirely possible. If the major corps that make up an index grow like mad, then smaller companies get squeezed. 6.9% growth in a small GDP growth environment is entirely possible.
More likely, however, is that smaller companies will do better than larger ones, and some will BUY larger ones, or replace them in the indexes. As a result, the indexes will continue to outperform the economy.
Taking a simplisitic view of the market, it has NEVER grown faster than the economy IF you factor in those companies (a HUGE number) that have failed. That is a lot of loss in the market that is simply forgotten when people talk about the "market grows 7% a year". Sure it does. If you're in the right places.
Hello, I found your site a number of months ago and liked it. Your record,of course, is impressive. I just opened a Blog using your site as an inspiration. I hope you are OK with that.

I, too, have with doing well with my investments.

I like your new porfolios, too (Cramer, Momentum, etc.). They are exactly the kinds of experimental portfolios I would start up (and did recently before I saw what you were doing).

I'll post more later and set up my blog better later.

Best of luck to you! Let us know the address of your blog when it's up.
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