Pension recovery performance 2020

AnotherJoe

YTD;

SIPP 1/ Up 12% via two very ordinary general funds with a little bit of replacing one fund mid year. (prop -> small cos)

SIPP2/ Up 75% aprox (tough to calculate*) , this SIPP has individual stellar performers like SMT & Tesla plus some other funds/ETFs/ITS that have done well.

* I take money out each month so how much its gone up isn't just a factor of the money taken out but how much that money taken out would have gone up as well. Too complex to calculate that.

AnotherJoe

Thrugelmir said:

How comfortable is everyone with Tesla joining the S&P 500 at an insane valuation? 

I'd be uncomfortable if that happened but its not yet an an insane valuation.

That may happen over the next couple weeks as shorts bail and index funds fight over the few remaining shares. Some of the big shorts already bailing though IIRC Michael Burry of The Big Short fame has just shorted.

If it goes really crazy i might take some profit, depends just how crazy.

AnotherJoe

Cus said:

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be classified as timing the market, making active decisions etc?

I dont see the point in investing in regions, any sufficiently large company to be in the top 2-3k is global anyway.

Another_Saver

AnotherJoe said:

Thrugelmir said:

How comfortable is everyone with Tesla joining the S&P 500 at an insane valuation? 

I'd be uncomfortable if that happened but its not yet an an insane valuation.

That may happen over the next couple weeks as shorts bail and index funds fight over the few remaining shares. Some of the big shorts already bailing though IIRC Michael Burry of The Big Short fame has just shorted.

If it goes really crazy i might take some profit, depends just how crazy.

I bought 4 pre split, down to 1 post split, £4.3k profit crystallised, 0 regrets whatever happens next. I think the current market cap means it musk slow down. Even if you're really bullish do you really see it quadrupling to overtake Apple or Aramco?

AnotherJoe

Another_Saver said:

AnotherJoe said:

Thrugelmir said:

How comfortable is everyone with Tesla joining the S&P 500 at an insane valuation? 

I'd be uncomfortable if that happened but its not yet an an insane valuation.

That may happen over the next couple weeks as shorts bail and index funds fight over the few remaining shares. Some of the big shorts already bailing though IIRC Michael Burry of The Big Short fame has just shorted.

If it goes really crazy i might take some profit, depends just how crazy.

I bought 4 pre split, down to 1 post split, £4.3k profit crystallised, 0 regrets whatever happens next. I think the current market cap means it musk slow down. Even if you're really bullish do you really see it quadrupling to overtake Apple or Aramco?

Sometime over the next 5 years or so, yes. As insurance i do hold Apple though 

Aramco? Dead.Industry.Walking.

We've already hit peak oil *. There's a lot more assets oil companies still need  to write off, though TBF Aramco will be one of the last remaining simply because their oil is amongst the cheapest to extract, but the oil price is extremely sensitive to demand, and there's an irrevocable  structural move to electric transport happening that means the demand for oil will drop so prices will remain low. But, a company with falling demand for its product isnt going to do well IMNSHO. Even my mate in teh oil industry where' he's sort of stuck due to his expertise, is hoping it will just about last him (another ten years or so) before theres too few jobs to be sustaining him.

* and BTW, I didnt claim that, BP did

[Deleted User]

Another_Saver said:

Deleted_User said:

“ most national stock market indices lag their country's GDP by about 2% a year...”

Source? I find this very surprising.  Have not seen anything like this in practice.  Stock markets are weakly correlated to GDP for several reasons. And generally they have outperformed anaemic GDP growth in the developed world. 

Another less academic source than the paper j referred to is https://www.investopedia.com/investing/calculating-equity-risk-premium/

This reference does not correlate national stock market indices with GDP, let alone make a claim that indices lag GDP by 2%. 

[Deleted User]

Another_Saver said:

Deleted_User said:

“ most national stock market indices lag their country's GDP by about 2% a year...”

Source? I find this very surprising.  Have not seen anything like this in practice.  Stock markets are weakly correlated to GDP for several reasons. And generally they have outperformed anaemic GDP growth in the developed world. 

I didn't say correlated.
Markets are a human system, to suggest they are so efficient that to try and do something else is silly... Well I think that's a silly idea.
I have explained how even over the recent long term, uprating (or positive speculative return) and listed companies expanding the share of GDP they occupy have cancelled out this effect. Neither of those should be relied on indefinitely.

Source: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchaffiliates.com/documents/FAJ-2003-Two-Percent-Dilution.pdf&ved=2ahUKEwiLz4Dz_bbtAhUOfMAKHe7kBDUQFjAAegQIAhAB&usg=AOvVaw3k73yZYUiPErU7pmTxLLQD

At the level of a sufficiently broad and large national index, stock returns are a function of:
Dividend yield and capital growth

Capital growth is a function of:
Inflation/change in price level

Population growth

Capital dilution/concentration

Change in valuation/rerating/

Stock market share of GDP expansion/contraction

Real productivity growth (real GDP per capita growth)

Unfortunately the UK has been tending towards an extreme example like Hong Kong or Singapore of a stock market that has close to nothing to do with the economy it is in. The FTSE 100s biggest mining company Rio Tinto for example pay most of their tax in Australia, have essentially negligible operations in the UK, I would guess that a very small amount of their sales, directly or indirectly are to the UK, and I suspect they are more than the UK average 55% foreign-owned.
However this is true, to varying degrees, of almost every company and every stock market in our globalised, internationally trading world.

Same thing. The reference does not claim that the index lags GDP growth by 2%, so it does not support your assertion. The reference talks about earnings growth.  That’s not what the index returns.  Firstly, a large chunk of the economy is not traded on the stock market and is not reflected in the index.  Secondly, earnings to price ratio has been going down for a looong time now.  Thirdly, the paper is dated.  It talks about a 100 year period and chooses to discount a decade.  Well, we are 20 years later. That’s 30 years’ worth of extra data vs the 90 year period they considered.   Over the recent decades buybacks in the US have outpaced share emission. The paper is dated on this issue as well.  

In reality, returns on major country indices have outpaced GDP growth over sufficiently long periods of time.  That’s a fact.  Does not matter what papers say - and they don’t actually say that indices return less than the GDP growth.  

This reference plots S&P 500 return vs GDP growth. https://www.bloomberg.com/opinion/articles/2020-06-09/stock-market-has-almost-always-ignored-the-economy

Another_Saver

Deleted_User said:

Another_Saver said:

Deleted_User said:

“ most national stock market indices lag their country's GDP by about 2% a year...”

Source? I find this very surprising.  Have not seen anything like this in practice.  Stock markets are weakly correlated to GDP for several reasons. And generally they have outperformed anaemic GDP growth in the developed world. 

Another less academic source than the paper j referred to is https://www.investopedia.com/investing/calculating-equity-risk-premium/

This reference does not correlate national stock market indices with GDP, let alone make a claim that indices lag GDP by 2%. 

Again at no point have I said correlate.
And yes it does:
"let's take real gdp at 3 to 4% for example. to use this measure for estimating future equity returns, we need to acknowledge a realistic relationship between it and dividend growth. it is a big leap to assume that 4% real gdp growth will translate into 4% growth in dividends per share. dividend growth has rarely, if ever, kept pace with gdp growth and there are two good reasons why.

first, private entrepreneurs create a disproportionate share of economic growth—the public markets often do not participate in the economy's most rapid growth. second, the dividend yield approach is concerned with per share growth, and there is leakage because companies dilute their share base by issuing stock options. while it is true that stock buybacks have an offsetting effect, they rarely compensate for stock option dilution. publicly traded companies are, therefore, remarkably consistent net diluters.

history tells us real gdp growth of 4% translates, at best, into roughly 2% growth in real dividends per share, or 3% if we are really optimistic. if we add our growth forecast to the dividend yield, we get about 3.5% to 4.5% (1.56% + 2 to 3% = 3.5% to 4.5%). we happen to match the 4% predicted by the earnings model, and both numbers are expressed in real terms before inflation."

Another_Saver

Deleted_User said:

Another_Saver said:

Deleted_User said:

“ most national stock market indices lag their country's GDP by about 2% a year...”

Source? I find this very surprising.  Have not seen anything like this in practice.  Stock markets are weakly correlated to GDP for several reasons. And generally they have outperformed anaemic GDP growth in the developed world. 

I didn't say correlated.
Markets are a human system, to suggest they are so efficient that to try and do something else is silly... Well I think that's a silly idea.
I have explained how even over the recent long term, uprating (or positive speculative return) and listed companies expanding the share of GDP they occupy have cancelled out this effect. Neither of those should be relied on indefinitely.

Source: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchaffiliates.com/documents/FAJ-2003-Two-Percent-Dilution.pdf&ved=2ahUKEwiLz4Dz_bbtAhUOfMAKHe7kBDUQFjAAegQIAhAB&usg=AOvVaw3k73yZYUiPErU7pmTxLLQD

At the level of a sufficiently broad and large national index, stock returns are a function of:
Dividend yield and capital growth

Capital growth is a function of:
Inflation/change in price level

Population growth

Capital dilution/concentration

Change in valuation/rerating/

Stock market share of GDP expansion/contraction

Real productivity growth (real GDP per capita growth)

Unfortunately the UK has been tending towards an extreme example like Hong Kong or Singapore of a stock market that has close to nothing to do with the economy it is in. The FTSE 100s biggest mining company Rio Tinto for example pay most of their tax in Australia, have essentially negligible operations in the UK, I would guess that a very small amount of their sales, directly or indirectly are to the UK, and I suspect they are more than the UK average 55% foreign-owned.
However this is true, to varying degrees, of almost every company and every stock market in our globalised, internationally trading world.

Same thing. The reference does not claim that the index lags GDP growth by 2%, so it does not support your assertion. The reference talks about earnings growth.  That’s not what the index returns.  Firstly, a large chunk of the economy is not traded on the stock market and is not reflected in the index.  Secondly, earnings to price ratio has been going down for a looong time now.  Thirdly, the paper is dated.  It talks about a 100 year period and chooses to discount a decade.  Well, we are 20 years later. That’s 30 years’ worth of extra data vs the 90 year period they considered.   Over the recent decades buybacks in the US have outpaced share emission. The paper is dated on this issue as well.  

In reality, returns on major country indices have outpaced GDP growth over sufficiently long periods of time.  That’s a fact.  Does not matter what papers say - and they don’t actually say that indices return less than the GDP growth.
If you include dividends then of course the total return on almost all national stock indices will outpace that economies GDP growth. The actual indices have lagged GDP over the very long term. That is a fact. I don't know where you have gotten yours from or how you explain yours. The reasons matter, how the markers work matters. They do actually say that as I explain further below.

This reference plots S&P 500 return vs GDP growth. https://www.bloomberg.com/opinion/articles/2020-06-09/stock-market-has-almost-always-ignored-the-economy

Yes it does, again I have never said anything about correlation.
The paper answers all of your points.
A stock market index's growth cannot exceed the dividend and earnings growth of the companies indefinitely. They have included re rating. The paper's age does not make it irrelevant - double entry book keeping is centuries old but still relevant. Since 1985, the FTSE 100 has diluted at ~2.4% pa, coincidentally offset by the same amount of expanding relative to GDP. I will try and find similar data for the S&P 500.

Another_Saver

A limited example in the UK is ONS GDP and the Barclays Equity Gilts Study. The former goes back to 1948, the latter back to 1900 but with a continuity breaks in 1930 and 1962. Still, GDP grew at 7.81% calendar year 1948-2019, the stock index at 6.86%.
The main limitation is a transition from the FT 30 to FTSE all share in April 1962.