Wall Street: the sessions Shadow exposure

financial
Hocus Pocus overshadowed by investors
grim reality.

believe
Are you in magic? This question is
people over and over again, and it seems that everything
more people on Wall Street
He answers this question in its strong
"Yes!".

They
We believe in magic in the late 1990s. Maybe,
it was the effect of Harry Potter. They
We believe in magic in 2006. Maybe on
This affects the "Twilight" and all those endless
vampires. It is quite obvious that they believe
in the supernatural today.

investors
the stock market magic sacred trust:
otherwise it is impossible to explain their strange
enthusiasm for S P 500 growth.

MagiyaUoll Street
- a sort of inexplicable belief
that shares rise on average by about
10% per annum (the alleged profit randomly
"Walks" around this magical
indicator with a more or less accurate
approximation). Also this magic is based
holy confidence that stocks
These make 10% regardless of
what is happening around, train and confidently.
And yet - it is a pseudoscientific belief that
finance - it is the same science,
as biology or chemistry. Investors think,
that action "earn 10% per year" exactly
as well as the water boils at 100 degrees
Celsius in the atmosphere. It -
the usual scheme of things established
order. The order of the universe.

In support of this
faith, they will point you in the long picking
data, according to which, with the most 1920
s shares actually added
about 10% per year for all this time (if
split the difference in cost by the number of
years). They can hang on the wall beautiful
diagram that shows the average
annual yield, clearly extending there
near this beautiful number.

ok
- so we have two options,
two polar points of view.

The first - the shares
really capable of stably
earn 10% per year, in obedience to some
inexplicable magic for us. second
- there is no built-in market is not magic
exist.

Suppose, in
1920 someone bought shares at a fixed
dividend yield of 4.5%. Wherein
they got the growth. profit Corporation
It has grown along with the economy (and the economy
It added 3.5%). Then they
We got more and 3% inflation compensation.
Add up all these numbers - and you get
eleven%.

more investors
We lost about 1% per annum on the way
called creative destruction
capital - namely, they are forced to
They had to sell some of their old
stocks to invest in new assets,
appearing on the market (Polaroid
and Xerox, Microsoft and Apple,
Google and Facebook). they
left ... Approximately 10% per year.
Magic!!!!

but open
eyes and sober.

Promotions - not
magical totems. They - not invisibility cloaks
and no balls in Quidditch. They simply
statements about the future stream
dividends.

shares may
just to make a profit in the form of
current dividend, plus the growth
company, plus inflation, minus dilution
new portfolio companies. If we
isolate hence inflation (which
really just an illusion and nothing on
effect, the income is not being) - we will stay
a profit of about 7%, based
exclusively on the company's profits.
Yes, with the most 20-ies of the XX
century.

Problem? Nope.
They have not yet started. berries are
below.

So.

today's
dividend yield - no more
4.5% of those that you have received in the 1920s.
They are usually less than 2%. Modern
economic growth too far from the
3.5%, which is returned to you in the XX
century. On the contrary, with each decade
growth was becoming less and less. A
for the past 20 years, the US
the economy grew by about already
2% per year (plus inflation) or even less.

Meanwhile, the new
companies continue to join
market - it costs you, say, 1% per year.
Based on this, mathematics inexorably
you said that a long-term profit
investors will be approximately
3%. Not even 7% and even more - not 10.

But Wall Street
Mathematicians do not agree. what profit
you should expect from a stock 2%
dividends and assuming 2%
growth? "Why, that's just 10%!" - says
Wall Street.

Magic?...