If you are a regular reader of Monevator you will have noticed that I have just had what I hope is the first of a regular series of quarterly Private Investor Market Roundups published. If you are not a regular reader then it could be worth a look. While it follows the usual Retirement Investing Today format of non emotional fact based analysis it introduces a number of new data sets which aren’t seen on this blog including a look at:
- The stock markets of the top 10 countries by GDP including pricing (both nominal and real), P/E and Dividend Yield. The countries are the US, China, Japan, Germany, France, Brazil, UK, Italy, Russia and Canada.
- The nominal and real HaliWide Index which is the average of both the Halifax and Nationwide House Prices Indices.
- The nominal and real performance of commodities including Gold, WTI Spot Crude, Soyabeans, Copper and Natural Gas.
Before I give you the hyperlink I must give a small warning. I had so much new content that I ended up with a post of some 2,000 words. Therefore before you click over you might want to grab a cup of tea.
So I give to you the first Monevator Private Investor Market Roundup for July 2012. It would be great to hear your thoughts?
As always DYOR.
- The stock markets of the top 10 countries by GDP including pricing (both nominal and real), P/E and Dividend Yield. The countries are the US, China, Japan, Germany, France, Brazil, UK, Italy, Russia and Canada.
- The nominal and real HaliWide Index which is the average of both the Halifax and Nationwide House Prices Indices.
- The nominal and real performance of commodities including Gold, WTI Spot Crude, Soyabeans, Copper and Natural Gas.
Before I give you the hyperlink I must give a small warning. I had so much new content that I ended up with a post of some 2,000 words. Therefore before you click over you might want to grab a cup of tea.
So I give to you the first Monevator Private Investor Market Roundup for July 2012. It would be great to hear your thoughts?
As always DYOR.
Hi RIT, Thanks for the Monevator article. Great stuff.
ReplyDeleteWe had a brief exchange the other day on a comment board re the long-term stockmarket return. We had (fairly minor) differences and it has just dawned on me why. Hope you don't mind me using this comment page to clarify.
You calculated using CAGR. That only considers the beginning and end years and is thus only dependent on the values in those specific years. It ignores what happens in between. If you selected a different start point the CAGR would be different. If the start year is depressed you will get a high CAGR, if it is a boom year the CAGR will be low (assuming the same finish year).
I had plotted all the values and fitted a trend line. The return is the slope of the trend line. That way all the values in the series are considered, not just the end members. Hope that clarifies.
Hi Paul
ReplyDeleteWhile I think I understand what you're saying, to make exactly sure, would you take a screen grab of your data and email it to me at the address shown on the upper right?
The reason is that I'm not immediately sure how your method helps the private investor. This is because for a private investor when it comes to the capital gain portion of the portfolio (the dividend bit is a separate discussion) aren't the only important points what s/he bought at, what s/he eventually sold at and how much time elapsed in between.
The fact that it was a wobbly line in between won't help. The only exception is that you might get a bit of a free lunch through rebalancing if you move outside of rebalance bands or if your rebalancing date arrives at the appropriate time. This of course depends on your rebalancing method, if you have one.
Thoughts?
Cheers
RIT
RIT, Hi,
ReplyDeleteYou are absolutely right in regards to an investor assessing an investment. He/She is only interested in the end points and CAGR is perfect for that. Either for the capital or the total return including dividends.
However we were talking about the measuring the historical long-term stockmarket return to get a number to use for "expected" future long-term returns. For that CAGR can be misleading. I plugged in a few random end years and got CAGRs between 5.5% and 7%. For this purpose the wobbly bits do matter and the trend line (slope of 6.25%pa) gives a better (in the sense it uses all the data) result.
The data I used was the Shiller S&P500 data except I took annual averages.
Cheers.