Pension recovery performance 2020

itwasntme001

The interesting thing that over the next few years/decades I think will be what kind of policies will we see that perhaps will shift the profit share of the economy from listed companies to the unlisted.

There are a lot of companies adding value outside of the listed firms, Private equity is becoming more attractive because public equities look very expensive.

But I suppose its a no brainier for a young person to be 100% public equities as it'll continue to generate 3-4% real pa right?  Right????

gadgetmind

I just posted this elsewhere, but it also fits well here.
I took my 1st pension payment from my SIPP in November 2018, have now taken 26 payments at a rate of just over 6% pa, and have 2.9% more in my pot than when I started. It peaked at 6.5% up in August 2019 (slightly higher late January 2020 but I only record once per month) and troughed at -10% in April 2020 as lockdown one started. I'm at a 50:50 equity to bond ratio, with rebalancing twice per year as I have to sell something to get enough cash for another six months' of payments. ISTR on one occasion doing a small purchase too but would have to check my records.

My equities are mostly in a Vanguard global ETF (VWRL) but I have boosted developer Asia and Emerging Markets via VAPX and VFEM. My bonds are split 50:50 between UK gilts and UK corporate, with a further split to reduce duration. I also have global infrastructure via INFR and a sliver of active via RIT Capital Partners and Scottish Oriental Smaller Companies.

Yes, it's been an "interesting" year, but I've been invested during the dot com crash, 9/11, gulf wars, credit crunch, sovereign debt crisis, and much more, so just keep rebalancing and I'm also a bit of a contrarian so actively seek out what others avoid. Our unwrapped portfolios contain holdings in an Investment Trust that has changed its name twice since we bought it, has had legal fights over management, and when we invested, at least one broker uses the word "toxic". It's done rather nicely for us assuming the acquisition goes through!

[Deleted User]

Another_Saver said:

Deleted_User said: 

Another_Saver said:

Deleted_User said:

Another_Saver said:

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.

Firstly, you don’t understand the word “correlate”.  If you are claiming a relationship with index returns lagging gdp growth by a constant percentage, thats positive correlation. 

Secondly, you chose to ignore the factual evidence.  The link I provided has a plot which shows that in the US returns have weak correlation with GDP.  Not only that, over long term returns have beaten GDP. By an awful lot. 

Thirdly, you make claims as if they are facts. Your claim that return growth cannot outpace dividend growth is not based on empirical evidence.  We”ve seen the opposite over the whole period of stock market existence.  

Last but not least... Here is another paper. Makes a clear point that actual historic returns are not correlated to GDP growth.  You do claim correlation, even if you don’t understand the word.  The paper claims that there is correlation to expectations of GDP growth but thats very different.  http://webdesign.prosperexperiential.com/frameglobal/wp-content/uploads/2018/11/GDP-Growth-and-Equity-Returns-Schroders-2013.pdf

Please read what I have said and stop patronising me. I have a maths degree, I know perfectly well what correlation is.
For the fourth time, I have never used the word correlate, nor has anything I said implied or relied on GDP/index correlation. As you still can't seem to understand this or correlation, but that I am stating that there is a relationship, I'll  try again.

I HAVE NEVER SAID THAT IF YOU COMPARE NOMINAL GDP, OR ANNUAL NOMINAL GDP GROWTH, WITH A STOCK INDEX, OR ITS ANNUAL CHANGES, THAT THERE SHOULD BE ANY SIGNIFICANT CORRELATION.

...
Re; dividends my claims are not factually incorrect, dividend payout ratios have fallen due to the growth of capital intensive tech and healthcare particularly in the S&P 500 and the growth of share buybacks culture. This is not indefinitely sustainable. Also due to boomer demographics the ratio of wealth to GDP in developed economies is at an all time high, capital is cheap, hence the temporary excess of stock indices over GDP. There is no reason to expect this to continue indefinitely - wealth cannot outstrip the economy that generates wealth indefinitely.

And here's a US source showing market cap growing faster than stock indices:
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.yardeni.com/pub/marketcap.pdf&ved=2ahUKEwid8YHO8LvtAhUTiFwKHXhHBHUQFjADegQICxAB&usg=AOvVaw0TpqVj3_FtsiynCA73NkR9&cshid=1607344447293

1. This what you said: “ most national stock market indices lag their country's GDP by about 2% a year...”
If it were true (it isn’t), it would mean positive correlation between indices and GDP growth.  That’s a fact. You can’t make up facts. 

2. You are also confused about the market cap.  Market cap of a given index cannot grow faster than the index. That’s not what your link is showing at all. It just compares market caps for various indices.  

You do not understand the difference between correlation and a relationship.
It is true.
It is true over the very long term regardless of correlation.
You can have GDP grow at 4% nominal for a century, and the stock market grow at 2% nominal for a century, with different volatility and short term behaviour. The index price wobbles around for all sorts of reasons not to do with GDP, but over the very long term the growth of the index is the growth of the companies in the index, their earnings cannot exceed the growth of the economy they are in. GDP growth is thus a cap on index growth. Over long but finite periods rerating, and stock market earnings fluctuating as a % of GDP can make it appear that this rule is so longer true.

I am not confused about market cap. As the paper I referred to shows, as the S&P 500 and FTSE 100 data I have presented clearly shows, the market cap of those indices has grown faster than the index. You can dispute the data and I may have miscalculated, but the conclusion is "a fact" as you like to say.

And another point about total return, even in a 0 growth would you would still get dividends. So to compare GDP growth with a stock index total return, with a growth and an income component, is not valid.

Edit, another source from MSCI https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.msci.com/documents/10199/a134c5d5-dca0-420d-875d-06adb948f578&ved=2ahUKEwihhcPLkLztAhVQTcAKHfR8CUYQFjALegQIGRAB&usg=AOvVaw2yECfSMHHAykx8dJz6Mt-K

“You do not understand the difference between correlation and a relationship”.

I might be a simple farmer rather than a maths graduate but I really do.  Your claim of GDP outperforming index by a fixed percentage is a perfect example of positive correlation.  Its pointless discussing something when you have no idea about basic  mathematical or investment concepts, ignore factual evidence to the contrary, don’t understand the references and have no desire to try and understand. 

[Deleted User]

Try this. It explains the concept in the terms even a maths graduate should be able to understand. https://www.displayr.com/what-is-correlation/

Another_Saver

itwasntme001 said:

This is quite a good article on market cap vs GDP.

https://voxeu.org/article/big-bang-stock-market-capitalisation-long-run

Well worth a read.

Even under the "singularity" scenario where wealth grows on average at some positive rate of return year after year "forever" (and thus over-time wealth will be seen as growing exponential), you may very well see market cap to GDP mean revert (because GDP will rise a lot and there is a good chance that we move closer to some sort of communist economy, perhaps most closely to China).  I find it hard to believe we are anywhere close to that, especially if you consider how much debt is in the system.  But even if we are moving towards the "singularity", it by definition means that things will get cheaper and cheaper, wealth will have less and less meaning so why the need to risk your capital to grow it?

Perhaps it is better to assume the worse when it comes to your own wealth and now certainly seems like a time to do so given we are at extremes on a multitude of levels.  Not least because I doubt anyone of us will live more than another 80 years or so (during which time there will be many booms and busts), although if you intend to pass on wealth to your heirs, that will change motivations etc.

In short, the Boomers are at it again. I do enjoy historical analyses like that. If anyone's interested in data before 1870 try this: https://www.google.com/url?sa=t&source=web&rct=j&url=https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.959.5232&rep=rep1&type=pdf&ved=2ahUKEwjx-YP2mbztAhUbilwKHSMnBkQQFjACegQIDxAB&usg=AOvVaw2I7GgawMPVxIXBjbVdFOZY

Another_Saver

Deleted_User said:

Another_Saver said:

Deleted_User said: 

Another_Saver said:

Deleted_User said:

Another_Saver said:

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.

Firstly, you don’t understand the word “correlate”.  If you are claiming a relationship with index returns lagging gdp growth by a constant percentage, thats positive correlation. 

Secondly, you chose to ignore the factual evidence.  The link I provided has a plot which shows that in the US returns have weak correlation with GDP.  Not only that, over long term returns have beaten GDP. By an awful lot. 

Thirdly, you make claims as if they are facts. Your claim that return growth cannot outpace dividend growth is not based on empirical evidence.  We”ve seen the opposite over the whole period of stock market existence.  

Last but not least... Here is another paper. Makes a clear point that actual historic returns are not correlated to GDP growth.  You do claim correlation, even if you don’t understand the word.  The paper claims that there is correlation to expectations of GDP growth but thats very different.  http://webdesign.prosperexperiential.com/frameglobal/wp-content/uploads/2018/11/GDP-Growth-and-Equity-Returns-Schroders-2013.pdf

Please read what I have said and stop patronising me. I have a maths degree, I know perfectly well what correlation is.
For the fourth time, I have never used the word correlate, nor has anything I said implied or relied on GDP/index correlation. As you still can't seem to understand this or correlation, but that I am stating that there is a relationship, I'll  try again.

I HAVE NEVER SAID THAT IF YOU COMPARE NOMINAL GDP, OR ANNUAL NOMINAL GDP GROWTH, WITH A STOCK INDEX, OR ITS ANNUAL CHANGES, THAT THERE SHOULD BE ANY SIGNIFICANT CORRELATION.

...
Re; dividends my claims are not factually incorrect, dividend payout ratios have fallen due to the growth of capital intensive tech and healthcare particularly in the S&P 500 and the growth of share buybacks culture. This is not indefinitely sustainable. Also due to boomer demographics the ratio of wealth to GDP in developed economies is at an all time high, capital is cheap, hence the temporary excess of stock indices over GDP. There is no reason to expect this to continue indefinitely - wealth cannot outstrip the economy that generates wealth indefinitely.

And here's a US source showing market cap growing faster than stock indices:
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.yardeni.com/pub/marketcap.pdf&ved=2ahUKEwid8YHO8LvtAhUTiFwKHXhHBHUQFjADegQICxAB&usg=AOvVaw0TpqVj3_FtsiynCA73NkR9&cshid=1607344447293

1. This what you said: “ most national stock market indices lag their country's GDP by about 2% a year...”
If it were true (it isn’t), it would mean positive correlation between indices and GDP growth.  That’s a fact. You can’t make up facts. 

2. You are also confused about the market cap.  Market cap of a given index cannot grow faster than the index. That’s not what your link is showing at all. It just compares market caps for various indices.  

You do not understand the difference between correlation and a relationship.
It is true.
It is true over the very long term regardless of correlation.
You can have GDP grow at 4% nominal for a century, and the stock market grow at 2% nominal for a century, with different volatility and short term behaviour. The index price wobbles around for all sorts of reasons not to do with GDP, but over the very long term the growth of the index is the growth of the companies in the index, their earnings cannot exceed the growth of the economy they are in. GDP growth is thus a cap on index growth. Over long but finite periods rerating, and stock market earnings fluctuating as a % of GDP can make it appear that this rule is so longer true.

I am not confused about market cap. As the paper I referred to shows, as the S&P 500 and FTSE 100 data I have presented clearly shows, the market cap of those indices has grown faster than the index. You can dispute the data and I may have miscalculated, but the conclusion is "a fact" as you like to say.

And another point about total return, even in a 0 growth would you would still get dividends. So to compare GDP growth with a stock index total return, with a growth and an income component, is not valid.

Edit, another source from MSCI https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.msci.com/documents/10199/a134c5d5-dca0-420d-875d-06adb948f578&ved=2ahUKEwihhcPLkLztAhVQTcAKHfR8CUYQFjALegQIGRAB&usg=AOvVaw2yECfSMHHAykx8dJz6Mt-K

“You do not understand the difference between correlation and a relationship”.

I might be a simple farmer rather than a maths graduate but I really do.  Your claim of GDP outperforming index by a fixed percentage is a perfect example of positive correlation.  Its pointless discussing something when you have no idea about basic  mathematical or investment concepts, ignore factual evidence to the contrary, don’t understand the references and have no desire to try and understand. 

Right back atcha 
I also tried my hand at becoming a CFA before realising a CTA would be even more exciting.
Just go and read my posts and the sources I refer to once you've calmed down.

[Deleted User]

Another_Saver said:

Deleted_User said:

Another_Saver said:

Deleted_User said: 

Another_Saver said:

Deleted_User said:

Another_Saver said:

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.

Firstly, you don’t understand the word “correlate”.  If you are claiming a relationship with index returns lagging gdp growth by a constant percentage, thats positive correlation. 

Secondly, you chose to ignore the factual evidence.  The link I provided has a plot which shows that in the US returns have weak correlation with GDP.  Not only that, over long term returns have beaten GDP. By an awful lot. 

Thirdly, you make claims as if they are facts. Your claim that return growth cannot outpace dividend growth is not based on empirical evidence.  We”ve seen the opposite over the whole period of stock market existence.  

Last but not least... Here is another paper. Makes a clear point that actual historic returns are not correlated to GDP growth.  You do claim correlation, even if you don’t understand the word.  The paper claims that there is correlation to expectations of GDP growth but thats very different.  http://webdesign.prosperexperiential.com/frameglobal/wp-content/uploads/2018/11/GDP-Growth-and-Equity-Returns-Schroders-2013.pdf

Please read what I have said and stop patronising me. I have a maths degree, I know perfectly well what correlation is.
For the fourth time, I have never used the word correlate, nor has anything I said implied or relied on GDP/index correlation. As you still can't seem to understand this or correlation, but that I am stating that there is a relationship, I'll  try again.

I HAVE NEVER SAID THAT IF YOU COMPARE NOMINAL GDP, OR ANNUAL NOMINAL GDP GROWTH, WITH A STOCK INDEX, OR ITS ANNUAL CHANGES, THAT THERE SHOULD BE ANY SIGNIFICANT CORRELATION.

...
Re; dividends my claims are not factually incorrect, dividend payout ratios have fallen due to the growth of capital intensive tech and healthcare particularly in the S&P 500 and the growth of share buybacks culture. This is not indefinitely sustainable. Also due to boomer demographics the ratio of wealth to GDP in developed economies is at an all time high, capital is cheap, hence the temporary excess of stock indices over GDP. There is no reason to expect this to continue indefinitely - wealth cannot outstrip the economy that generates wealth indefinitely.

And here's a US source showing market cap growing faster than stock indices:
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.yardeni.com/pub/marketcap.pdf&ved=2ahUKEwid8YHO8LvtAhUTiFwKHXhHBHUQFjADegQICxAB&usg=AOvVaw0TpqVj3_FtsiynCA73NkR9&cshid=1607344447293

1. This what you said: “ most national stock market indices lag their country's GDP by about 2% a year...”
If it were true (it isn’t), it would mean positive correlation between indices and GDP growth.  That’s a fact. You can’t make up facts. 

2. You are also confused about the market cap.  Market cap of a given index cannot grow faster than the index. That’s not what your link is showing at all. It just compares market caps for various indices.  

You do not understand the difference between correlation and a relationship.
It is true.
It is true over the very long term regardless of correlation.
You can have GDP grow at 4% nominal for a century, and the stock market grow at 2% nominal for a century, with different volatility and short term behaviour. The index price wobbles around for all sorts of reasons not to do with GDP, but over the very long term the growth of the index is the growth of the companies in the index, their earnings cannot exceed the growth of the economy they are in. GDP growth is thus a cap on index growth. Over long but finite periods rerating, and stock market earnings fluctuating as a % of GDP can make it appear that this rule is so longer true.

I am not confused about market cap. As the paper I referred to shows, as the S&P 500 and FTSE 100 data I have presented clearly shows, the market cap of those indices has grown faster than the index. You can dispute the data and I may have miscalculated, but the conclusion is "a fact" as you like to say.

And another point about total return, even in a 0 growth would you would still get dividends. So to compare GDP growth with a stock index total return, with a growth and an income component, is not valid.

Edit, another source from MSCI https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.msci.com/documents/10199/a134c5d5-dca0-420d-875d-06adb948f578&ved=2ahUKEwihhcPLkLztAhVQTcAKHfR8CUYQFjALegQIGRAB&usg=AOvVaw2yECfSMHHAykx8dJz6Mt-K

“You do not understand the difference between correlation and a relationship”.

I might be a simple farmer rather than a maths graduate but I really do.  Your claim of GDP outperforming index by a fixed percentage is a perfect example of positive correlation.  Its pointless discussing something when you have no idea about basic  mathematical or investment concepts, ignore factual evidence to the contrary, don’t understand the references and have no desire to try and understand. 

Right back atcha 
I also tried my hand at becoming a CFA before realising a CTA would be even more exciting.
Just go and read my posts and the sources I refer to once you've calmed down.

As a simple farmer I am very impressed by your credentials and a bit disappointed you don’t know basic concepts like correlation.  Let’s leave it at that. 

Another_Saver

FTSE 100 market cap 31/12/85 £164bn, Index level 1412.6
Market cap 31/12/19 £1,888.878bn, index level 7,542.4
Divide the 2019 figures by the 1985 figures and do those cumulative returns to the power of 1/34 for the geometric average, the market cap grew at 7.45%, the index price at 5.05%.
This disproves what you said about market cap being unable to grow faster than the index.
GDP 1985 414428, GDP 2019 2214362, CAGR 5.05%. Why the same as the index and not closer to the market cap? Market expanding relative to GDP as the Vox EU paper from @itwasntme001 suggests. Ftse 100/GDP 1985 39.6%, 2019 85.3%, same growth as the dilution of the index to market cap. Valuations appear similar, Barclays Equity index (reasonably close to the 100) dividend yield 1985 4.3%, FTSE 100 yield 31/12/19 4.36%. I don't have PE data back that far. Point is it doesn't appear that rerating explains how the FTSE 100 more than doubled in size relative to GDP.

2019 GDP £2,214,362mn, 2017 Barclays Equity index 17,444, FTSE all share 29/12/17 4,211.82, 31/12/19 4,196.47, Barclays Equity index 2019 computed as 17,339 ( I only have the 2018 edition so have to compute forward using actual index data).
1948 GDP £11,425mn, 1948 Barclays Equity index 157
Do the same again, GDP grew 7.70%, index by 6.85% (I may have miscalculated earlier, on phone).
I would submit that 71 years is long enough to dilute the effects of short term market movements. This disproves your point about the stock market growing faster than GDP. 

This has nothing to do with annual correlation. There is no reason why chopping the 34 year period into years or quarters should make a correlation appear. The stock market bounces around for all sorts of reasons in the short term that average close to 0. But a lack of correlation does not imply a lack of relationship, that is not how maths or logic work. You can have related but uncorrelated variables.

I am fully supported in my assertions by all the sources I have referred to. If you have alternative facts, please present them.

itwasntme001

Correlation !=> causation

Causation !=> LINEAR correlation but does imply correlation in general

I think that is where the confusion is.

Another_Saver

itwasntme001 said:

Correlation !=> causation

Causation !=> LINEAR correlation but does imply correlation in general

I think that is where the confusion is. 

@Deleted_User
as above I think that's what you've not been getting (I have tried to tell you... 7 times)