Inflation is not a very “researchable” topic.  Most projections about inflation are condemned to be wrong. The Fed employs over 400 Ph.D. economists, yet its inflation projections have been consistently wrong for years. 

Scientists versus Water

I believe it is extremely difficult for humans to comprehend and predict the dynamics of a large complex system, even though we have perfect knowledge of all the individual elements in such a system. 

Let me draw an analogy, call it “Scientists versus Water”:  Scientists, in a laboratory environment, think they know everything about water.  Water is H2O; water can freeze, boil, and evaporate.  However, sitting in a lab, staring at water, these scientists could never imagine tides, waves, or tsunami, let alone trying to make predictions of when these phenomena could occur.  Yet, these are what water can do too!  The scientists who only study water in a lab will never know!

Read More »

I analyzed all American and Chinese companies that were ever publicly traded from 1970s to today. I then grouped them into “U.S.” and “China” according to a company’s country of domicile. In total, my analysis covered over 21,000 listed stocks.

My findings can be summarized in the following tables. Here, the columns “Average ‘Baggers'” mean the number of times a stock has gone up (including dividends) during a given decade — for example, if that column shows 15, it means the average stock from that particular sector has gone up 15x during the given decade — i.e., your $1 of investment has turned into $15.

Read More »

The Social Mobility of Stock Markets

— A Historical Perspective into the U.S. and Chinese Stock Markets

My previous piece A Decade of Inequality focused on the concept of “market cap gains.”  It reviewed the end results but paid little attention to how we got there — how did it happen that almost all the market cap gains were concentrated with the largest companies?  Was it because larger companies started bigger so their gains over a decade’s time naturally became bigger?  Or was it because smaller companies collectively never had a chance to grow big at all?

To put it differently, the question that my previous piece raised and that I am trying to answer in this piece is this: over the past few decades, have stock markets in the U.S. and China offered “social mobility” so that smaller companies can still achieve above-average returns relative to their larger peers?

Read More »

My wife and I decided not to go anywhere on New Year’s Day. Instead, we spent the day at home. Bored, I decided to devote my first day of this new decade to examining something interesting of the past decade. One of the most distinctive features of the 2010s was America’s roaring stock market, which now is the longest bull market in history. Including dividends, $1 invested in the S&P 500 Index — a basket of some 500 companies — has turned into $3.6, a whopping 13.6% annualized rate of return. The stunning performance of America’s stock market invites the arrival of a very logical conclusion: over the past decade, American companies and people have fared well.

However, this rosy image does not square with reality. For the 19 years from 1999 to 2018, real median household income in the U.S. has only grown at 0.14% a year; from 2007 to 2018, the pace was only 0.32% a year.

Read More »