Maurice -
...With a lot of people deferring consumption and investing, that reduces the average returns on investment.
So, while 8% might have been reasonably expected mid 20th century, perhaps 3% is reasonable for these days.
Profitability is a reflection of value added. Maybe there are relatively few ways in which high value can be added, so people prefer to just spend their money instead of deferring expenditure to earn a small return on investment....
All good points, except the reality is worse.
All investment gains are a combination of fortuitous timing of the valuation fluctuations ( buying low and selling high ) and ownership claims on the real returns of businesses. The former is zero sum over the long term and over all participants. The latter is limited by two factors.
First, business returns are not enhanced to any significant degree by the number of public market investors trying to share them, so the rates of return to those investors vary largely inversely to their population.
Secondly, the majority of the economic value added by business is not accessible to investors in financial form, but rather flows to consumers in increased standards of living in the form of lower prices, higher quality, and more choices. In addition, sustained profits are the exception, not the rule.
Regards, Don |
