The vast majority of the equity premium is unexplained. When people say “just buy stocks and hold for a long period and you’ll make 10% a year”, they’re asserting that the unexplained equity premium will persist, and I have a problem with that assumption.
I tried to clarify this in my first reply. You should interpret it as saying that stocks were massively undervalued and shouldn’t have gone up significantly more than bonds. I was trying to explain and didn’t want to include too many caveats, instead leaving them for the replies.
It’s interesting to note that several other replies gave the simplistic risk response without the caveat that risk can only explain a small minority of the premium.
>The vast majority of the equity premium is unexplained. When people say “just buy stocks and hold for a long period and you’ll make 10% a year”, they’re asserting that the unexplained equity premium will persist, and I have a problem with that assumption.
I completely agree with you here. My point is that this comment is different from the plain language interpretation of your top post. I know that is a seemingly small point, but I commented because I don’t want to leave future readers with the wrong impression. If we did not have this conversation, I think they may have been left thinking that it is a puzzle that stocks go up at all. I don’t view that as a simple caveat to the initial statement, but a different statement entirely.
Can we agree on the following statement? “While it is expected that stocks will go up, and go up more than bonds, it is yet to be explained why they have gone up so much more than bonds.”
The vast majority of the equity premium is unexplained. When people say “just buy stocks and hold for a long period and you’ll make 10% a year”, they’re asserting that the unexplained equity premium will persist, and I have a problem with that assumption.
I tried to clarify this in my first reply. You should interpret it as saying that stocks were massively undervalued and shouldn’t have gone up significantly more than bonds. I was trying to explain and didn’t want to include too many caveats, instead leaving them for the replies.
It’s interesting to note that several other replies gave the simplistic risk response without the caveat that risk can only explain a small minority of the premium.
>The vast majority of the equity premium is unexplained. When people say “just buy stocks and hold for a long period and you’ll make 10% a year”, they’re asserting that the unexplained equity premium will persist, and I have a problem with that assumption.
I completely agree with you here. My point is that this comment is different from the plain language interpretation of your top post. I know that is a seemingly small point, but I commented because I don’t want to leave future readers with the wrong impression. If we did not have this conversation, I think they may have been left thinking that it is a puzzle that stocks go up at all. I don’t view that as a simple caveat to the initial statement, but a different statement entirely.
Can we agree on the following statement? “While it is expected that stocks will go up, and go up more than bonds, it is yet to be explained why they have gone up so much more than bonds.”
Did you see my initial reply at https://www.lesswrong.com/posts/4vcTYhA2X99aGaGHG/why-do-stocks-go-up?commentId=wBEnBKqqB7TRXya8N which was left before you replied to me at all? I thought that added sufficient caveats.
>”While it is expected that stocks will go up, and go up more than bonds, it is yet to be explained why they have gone up so much more than bonds.”
Yeah, I’d emphasize slightly more in expectation.