[sk11001]

They don't need to return to baseline. The overall market return can be around 7% - within that you'll have losers, flat lines and huge winners like Apple and Nvidia. That's how you get to the 7% average - by having some companies gain much more than that.

[ggm]

It's very hard for that to sustain over decades without causing market distortions. I'd be interested in what is the longest run of above-market returns by any company since the 1870s.

In effect, if they accrue enough value, then they alter the average rate of return. And, since that sucks capital out of the rest of the economy, we're kind of fucked overall because companies making tinned peaches and medicine actually need capital, and a good rate of return depends on that capital.

[JumpCrisscross]

> since that sucks capital out of the rest of the economy, we're kind of fucked overall because companies making tinned peaches and medicine actually need capita

What's constraining the latter is rates. There is zero evidence tech companies are causing the inflation that is pushing up rates. (If anything, it's broadly deflating.)

(And to my knowledge, getting financing for tinning peaches or medicines is plentiful. It's called middle market finance, and while it doesn't make the headlines, it's huge.)

[ggm]

As a non-economist, I ask: do you think their above-grade returns can persist into the future for decades, without becoming a concern, or altering this 7% rate?

My example of why it is bad is a hypothetical. If it's a stupid hypothetical I accept that, but my underlying belief that you cannot really have identified, "the same" companies continue to return 2-3x market average over 50 years without some concern remains.

Am I wrong? Sure, some companies do better than others. Warren Buffet swears by re-insurance. When the west coast disappears in a tsunami, it won't be as bountiful, right?

[creer]

There is a problem of perception. Apple, telsa, Nvidia, Google are in the news a lot - currently.

Apple has been amazing for the past 20 years. Even during that period, its PE has varied a lot - the amount of money people were willing to pay compared to profits: at times it's very popular, at times not.

Coca Cola is not in your list. But its result during the 1980s, 1990s was less but comparable to Apple these past years.

Google is only 25 years old.

Nvidia stock market price has been amazing only the past 10 years.

Tesla is only 21 years old as a whole. Its stock price is too chaotic to be even described by a single return rate!

Walmart did amazing 1975-1993. Nearly 20 years, then not so good.

IBM, GE, several others had times of glorious stock market return.

But, to return to the way you phrased it, more or less there have always been some companies that seemed to return a lot. Perhaps too much. That's more or less a normal of the stock market. None of them has lasted indefinitely or somehow taken over all of finance. Keeping a large company growing at this pace is, erm, hard. Note that this is not Apple's strategy currently: Apple produces a lot of profit and it is returned to the shareholders rather than desperately trying to grow the company with that money.

[ptero]

It feels like I am always peddling Lyn Alden on macro questions. One of Lyn's recent public articles analyses long term returns and argues that most investments suck, and a few superachievers pull up the averages.

So Apples and Nvidias eventually rotate out of the return engines club and are replaced by next few champions; but not a broad group.

[JumpCrisscross]

> do you think their above-grade returns can persist into the future for decades

In aggregate, yes, given equities have done just fine persisting over the last century and a half. (Also, the 7% figure appears to be nominal.)

> you cannot really have identified, "the same" companies continue to return 2-3x market average over 50 years without some concern remains

No, I don't believe we have precedent for this.

> When the west coast disappears in a tsunami, it won't be as bountiful, right?

Flooding isn't typically privately insured. As far as reinsurance is concerned, a tsunami taking out a bunch of California would be financially uneventful; on one hand, you're losing a premium stream, on the other hand, you've freed up reserves.

(Not an economist nor an actuary, but have training in both and some licensing in the latter.)

[creer]

Are these two example well chosen? Seems to me there has been plenty of entrepreneurship in food. So many new companies started in the past perhaps 20 years, and many now surprisingly large.

And medecine overall (drugs, machines, care, insurance, tests, prevention) has been considered a field with good future prospects for a long time - worthy of investing.