Interesting read. However, a buy-and-hold 30 years strategy is not per se the typical case (before pension). A more realistic scenario would be to "buy every month for 30 years" and evaluate the CAGR at the end of the period. This will move the expected reward more closely to the mean, as one basically takes 360 samples from the presented distribution (though every next draw has a 1 month shorter duration).
Agreed. This was my first thought as well while analyzing this. Unfortunately, the paper's authors have not covered this, and we don't have the raw data to backtest it ourselves.
But, we have some idea about how annuity investments would change the asset allocation compared to a 30-year buy and hold.
I now see table IA6 and IA7 on pdf page 70 give a sense of distribution for different time horizons. This could be used to approximately reconstruct an annuity investment scheme.
Great article. What makes international diversification so much more difficult, though, other than identifying investment opportunities, are the randomly appearing U.S. sanctions. Many of the BRICS+ countries and are either off-limits for U.S. investors, have in recent years become off-limits (such as China Mobile and Russian companies), or are in danger of becoming off-limits soon (Hong Kong is rumored to be sanctioned, which would affect the stock market for most foreign investors in China). India, for now, is still okay, but for how much longer? Even NATO countries, like Turkey, are not safe. I am not trying to dissuade anyone from investing in those countries where U.S. investors are still allowed to invest, but one needs to have a Plan B. Michael Burry, who made a fortune predicting the 2007 subprime crisis, recently significantly increased his Chinese investments, but he also bought puts. He didn't say it, but I suspect it was as a hedge against randomly appearing U.S. sanctions.
In Europe, while markets may exhibit different dynamics, the principle remains similar. European equities, despite facing occasional challenges from regional economic slowdowns and political uncertainties, have also historically provided long-term growth.
Stocks are generally a good long-term investment to hedge against inflation. Even though you might have a short-term impact due to the uncertainties surrounding inflation, great companies would be able to pass on the increasing price to the customers.
You must look into companies with pricing power (think Apple) to raise prices on their customers without significantly affecting their overall sales.
Very important article giving a much broader perspective than the very narrow data that we are usually presented with. It is true that no one thinks about these much more difficult periods of times for countries and markets. Given the evolving geopolitical situation that we are living today it is wise to keep those historical periods and outcomes in mind!
Th US has one of the most fortuitous combinations of geography/resources/capitalist ideology and culture ever seen, and its currency is the reserve currency of the world. That latter issue is most importamt, and the day taht changes, is the day taht teh chickens coem home to roost.
The poor recent Japanese experience may be tempered by the observation that it experienced deflation over that interval and post-retirement expenditures actually declined in nominal terms.
Hi, one of your subscribers, here :) Recently I've also developed a saas app for algorithmic investment. I'm interested in advertising it in your newsletter. Where can I get more info about such a deal?
Hi Jaewon, thanks for the interest, but we are not currently accepting sponsors for our newsletter! You can drop a note at marketsentiment.live@gmail.com and we will get back to you incase it changes in the future :)
Interesting read. However, a buy-and-hold 30 years strategy is not per se the typical case (before pension). A more realistic scenario would be to "buy every month for 30 years" and evaluate the CAGR at the end of the period. This will move the expected reward more closely to the mean, as one basically takes 360 samples from the presented distribution (though every next draw has a 1 month shorter duration).
Agreed. This was my first thought as well while analyzing this. Unfortunately, the paper's authors have not covered this, and we don't have the raw data to backtest it ourselves.
But, we have some idea about how annuity investments would change the asset allocation compared to a 30-year buy and hold.
Compare the results from page 76 to page 43.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3594660
I now see table IA6 and IA7 on pdf page 70 give a sense of distribution for different time horizons. This could be used to approximately reconstruct an annuity investment scheme.
Great article. What makes international diversification so much more difficult, though, other than identifying investment opportunities, are the randomly appearing U.S. sanctions. Many of the BRICS+ countries and are either off-limits for U.S. investors, have in recent years become off-limits (such as China Mobile and Russian companies), or are in danger of becoming off-limits soon (Hong Kong is rumored to be sanctioned, which would affect the stock market for most foreign investors in China). India, for now, is still okay, but for how much longer? Even NATO countries, like Turkey, are not safe. I am not trying to dissuade anyone from investing in those countries where U.S. investors are still allowed to invest, but one needs to have a Plan B. Michael Burry, who made a fortune predicting the 2007 subprime crisis, recently significantly increased his Chinese investments, but he also bought puts. He didn't say it, but I suspect it was as a hedge against randomly appearing U.S. sanctions.
Curious. How did you find this article?
Great question. I just realized that the article is a year old.
It somehow popped up in my Substack feed.
Maybe because I was exploring different authors and topics?
In any case - great article!
Thank you :)
These ideas are still valid today. Thanks!
In Europe, while markets may exhibit different dynamics, the principle remains similar. European equities, despite facing occasional challenges from regional economic slowdowns and political uncertainties, have also historically provided long-term growth.
Inflation will be the hurdle that prevents US investors from making real gains over the next 30 years.
It depends.
Stocks are generally a good long-term investment to hedge against inflation. Even though you might have a short-term impact due to the uncertainties surrounding inflation, great companies would be able to pass on the increasing price to the customers.
You must look into companies with pricing power (think Apple) to raise prices on their customers without significantly affecting their overall sales.
Very important article giving a much broader perspective than the very narrow data that we are usually presented with. It is true that no one thinks about these much more difficult periods of times for countries and markets. Given the evolving geopolitical situation that we are living today it is wise to keep those historical periods and outcomes in mind!
Th US has one of the most fortuitous combinations of geography/resources/capitalist ideology and culture ever seen, and its currency is the reserve currency of the world. That latter issue is most importamt, and the day taht changes, is the day taht teh chickens coem home to roost.
The poor recent Japanese experience may be tempered by the observation that it experienced deflation over that interval and post-retirement expenditures actually declined in nominal terms.
Hi, one of your subscribers, here :) Recently I've also developed a saas app for algorithmic investment. I'm interested in advertising it in your newsletter. Where can I get more info about such a deal?
Hi Jaewon, thanks for the interest, but we are not currently accepting sponsors for our newsletter! You can drop a note at marketsentiment.live@gmail.com and we will get back to you incase it changes in the future :)
Gotcha. Thanks for the reply, just dropped a note there! :)