Bogle Effect or Congressional Statutue Effect?
 

Interesting viewpoint about viewing the stock market and the combination of 401k plus passive indexing / other pension plans

https://x.com/tyler_neville_/status/1942279423224389737

I love this framing of the SPX!

If your framework is that "markets are now a political utility" and we are in an era of fiscal dominance and negative real yields, you won't be shocked.

If you are going off a Boomer/Gen X framework that we are in a democratic capitalist free market, @MelMattison1 and I regret to inform you that you'll be continually disappointed with your returns, especially relative to inflation.


https://x.com/melmattison1/status/1942253077412606110

Let me explain further:

In decades past, S&P was more or less a discounting mechanism for future cash flows used by the wealthy as an alternative to cash-flow producing opportunities available in private markets and elsewhere.

That is no longer the case.

The passage of MAGA accounts cements the S&P as a new pension scheme for the US. This transition began with the institution of the 401(k) and continues to this day.

The S&P 500 is, in a very real sense, a new public good. It is backed by Congress and the Executive. It is also backed by the Fed.

All of this creates a very real different return profile from the past. Looking at it and saying a 17 P/E sounds right is ludicrous.

Given it's now explicit and implicit gov't backing, its role as the modern-day pension scheme, and its fundamental de facto backing of the bond market, means it deserves a much higher multiple, in the 20s if not 30s.

People who ignore all these true yet exogenous facts regarding the markets, and insist on trying to analyze them from 20th century principles, are dinosaurs and not worth of your attention.

That is indeed an interesting take. So if the conclusion is that you can not expect reasonable returns from equities, and certainly not bonds, where do you put your investments? Gold? Crypto? Commodities?

As you like to say Sportsguy, "good luck".

High past returns in the stock market generally imply lower long term future returns. No one know what will happen next year or the year after that. In the long run, the trend is up; just maybe a bit less so previously thought.

Another thing to consider, beyond the government's involvement*, is that a PE of 15 was historical. Imagine a world where triple the money was printed, but there's not triple the amount of value-generating businesses to invest in. You would expect PEs to 30+ because there's more paper cash chasing fewer business ownership stakes (stocks). Also in a world with PE of 30 compared to PE of 15, you would expect investment returns to be half going forward since you're paying twice as much for the same businesses / profit / future cash flow.

*BTW, when has this ever turned out well?

The Buffett Indicator surging to almost 210% is terrible news for Wall Street in the sense that it signals value is becoming increasingly hard to come by. It also suggests Berkshire's brightest investment mind is going to continue to sit on his company's record-breaking cash pile of $347.7 billion (including U.S. Treasuries).

From: Billionaire Warren Buffett's Favorite Valuation Tool Just Made Dubious History -- and It Couldn't Be Worse News for Wall Street

As it has since the original BRK was @ $3K/share in the mid 1980s a large chunk of my portfolio will continue to remain with Buffett and the top notch executives who manage Berkshire.

although true for the historical SP500, SPX, there have the 176 changes in the composition of the SPX in 30 years, (not exactly certain of time frame) removing old P/E stocks with new P/E stocks. . .

Technology stock inclusions versus traditional mfg stocks have distinctively different features:

tech stocks can scale to larger sizes
tech stocks have a higher percentage of recurring revenue vs product revenue
tech stocks have a bit higher cash flow
tech stocks have a speed innovation factor, where old products do not. .

So the SPX may be able to earn a higher multiple consistently than old product stocks, but the question remains about indexing:

As more shares are purchased monthly for 401Ks and are purchased without regard to valuation levels, and are held indefinitely without trading, that leaves few actively managed shares to manipulate the price, and fewer shares means more volatile pricing. .

And then at some tipping point in the future, will the 401K inflows be overtaken by the IRA RMD outflows as the working population with 401Ks falls with continued corporate layoffs due to AI and automation, and especially if SS benefits are reduced due to funding issues?

macro viewpoints of course

The S&P has been a gubmint welfare program since Greenspan in 1987 :)

I think you're right...Evaluations don't matter in our current fiat currency world. You need to create a Meme Stock like TSLA to flourish.

In a free market with market money, maintaining 10X would require a lot of hard/smart work.

And at the same time an aging population has more people retiring relying on the built up , (inflated?)capital

P/e
 

In my viewpoint p/e always has to do with your view of growth in the economy versus what you can get at the bank for high interest rate deposits. If you can get 5%, that's an equivalent to a PE of 20 as interest rates go down the pe's then become more lucrative as they go up.

Of course if your stock pays a dividend but does not grow it's a different story versus a high growth stock which is generally considered better for future long-term,

The way the stock market has not always returned such generous growth. 19 29 to 1939 we had a negative 3% as well as 1990 to 19 99 we had negative 2% give or take. You can go to gemini or Google and ask these questions

There is a meme going around that 80% of the stock market is held by less than 20% of the population so I'm really not worried about people taking money out for retirement

I went to google and found that (according to macro trends.net) the S and P had values of

Dec 1989 - 353.4
Dec 1999 - 1469

How is this a negative 2% growth?

Did you factor in inflation?

if you listen to this garbage, no wonder people don't make money in the market. I have had a handful of 150k daily gains in the market since the election. I got out of the market late 2024 because of a few reasons, went all money market. Then when EVERYBODY was stating there's a 50% chance of a recession, tariffs are going to be bad, bad new after bad news, I got fully back in the market on April 3rd. I bought stocks at $26 and sold 6 weeks later for $64, a few other stocks went up over 50%. I got out of those 3 high flyers at the end of May, put those monies into other long term stocks that have made me over 60% gains and still climbing. Who says you can't make money in the market?

I don't listen to any particular person/event, I listen to outbursts from people that make you think is it wise to be in or out of the market. For example, in 2020, when things were way down, I kept hearing it was going to be a "V" shaped recovery so I didn't make a move. Late 2021, I heard the so-called finance experts state "inflation was going to be transitory", I sold everything in Dec 2021. Then when the market was at its lowest in sentiment, I started getting back in the market in late 2022 thru early 2023. TSLA, META, were below $100, and many others that were getting written off, it was time to buy. After the newness of the election, after a couple really good days, things started to get ugly so I got out again. Getting out was moving to money market making 5.25% at its peak and still today over 4%. Then when everybody thought Armageddon was going to occur the beginning of April, Jamie Dimon and others stating a recession was coming, I got into stocks that were beaten up like HIMS and a few others and they went up huge in a matter of weeks, then I got out of 3 of them.
IMO, when people write articles that investments won't go up like they did in the past, they don't know what they are taking about. When the market goes up 1% or 2% in a day, that doesn't mean everything you own goes up by that amount. I have had some stocks go up 5% or more when the market was down 2%and vice versa. In today's environment, you have to know what stocks/funds to buy to make money. I wouldn't be chasing any stocks right now, but I would definitely be looking at stocks that are great companies that took a dip. For example, when I sold 3 stocks in late May, I bought into a couple stocks that took a hit of 5 or 6% in 1 day, so I bought them on those days and they are soaring ever since.

Please post your net worth along with your investment advice so we can use your advice effectively

Real or imaginary?:laugh:

How much do you charge for your newsletter and where can I subscribe?

Why is it so far fetched to make $$$ in the stock market? I know most investors make little to nothing in the market long term, which is a shame. I already told you 1 stock that did well, look at some of these that have increased 50%-90% since April 1st: vistra, vrt, dell, ceg. There are many more too. It’s no secret, the data is out there, you just need to look for it and think for yourself is it going to be a good investment for me now and long term. Put a trailing loss on each stock if you don’t want it to go down much, or if you see there are headwinds coming, take the emotions out and sell while it’s still climbing and don’t regret it, no matter how much more it goes up.

Most investors buy into active mutual funds that have very high expenses, high turnover, high load fees, and probably pay an advisor 1%-1.5% on top of that.
IMO, investing involves research, common sense, no emotions on buying and especially when selling, and a broad look at what’s going on in the country/world. Everything else is just noise.

I would imagine that if one lives that close to the bone financially, all that effort trading constantly is their job to make enough money on which to live. Who, in their retired life, wants to be tied to a computer, day trading and dancing around to make more nickels? What a suck of life hours to be watching the pyramid scheme, alias stock market to garner more nickels if one doesn't have enough saved for retirement. :popcorn:

It isn't.

But study after study has proved that the more you trade, the lower your returns.

If you've figured out a way to beat the odds, good for you. It just doesn't work for the majority of people. Especially, as @Aces4 said above, you don't make it your full time job.

Yup, it’s a full time job, if your job is 10-30 mins a day a few days a week. It takes me longer to drive to subway for lunch. Some weeks 0 mins, other weeks 30 mins a day, and that includes reading financial books. Since my last trades a few weeks/month ago, I’ve spent 0 mins.
Right now, most things are automated: if a stock drops x%/$$$, I get alerted to buy, same for selling, if the price drops x%/$$$, sell some or all.
Like I said pretty simple

Yeah, but there are those who don't have to waste anytime with that in retirement. Good luck on your wagering.

there are a million ways to make money in the market. .
same number to lose money. .

Since there is a constant upwards bias, buying after a dip of 30% has very low risk, not zero, just very low.
Why? because the more stocks drop the more they approach a large discount to fair value. . ie, they are under valued. . and who doesn't like a stock market sale. .

Selling at the top is much more difficult, due to the upward bias, cult behavior, momentum following, trend following and known ATHs beget ATHs. . serial correlation. . like selling a house just after the top, your price never seems to get bid. . someone always wanting to buy undervalued with a low ball bid. . instead of just you taking the best bid just below your offering price.

don't get greedy and stubborn for your biased price.

good luck to us