Sunday, May 23, 2010

What happened before never happened before -- a quick aside on the equity premium debate

I've been enjoying this online discussion (particularly the contributions of Felix Salmon) and I'm sure Joseph and I will have more posts on the subject but first I have something I have to get off my chest:

No one can possibly know what's going on here! We can get some smart people making good guesses about long term stock performance, but these guesses are based on data from a century's worth of secular upheavals. A list that includes the Great Depression, two world wars, a post-war reconstruction, the cold war, China becoming a major player, boomers entering the market, boomers leaving the market and huge changes in regulation, technology and business practices.

What's happening now never happened before. What happened before never happened before. What happened before what happened before never happened before. We have no precedents. People are recommending forty-year investment strategies using models based on data from markets that haven't gone twenty years without a major secular change.
There. I've got it out of my system. Go on with what you were doing

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