RE: Genuine question3 Jan 2024 12:31
Hi Moneybox. Unless I missed something, all your arguments are based on past total returns, which mostly means share price movements in the case of the S&P500. You haven't taken the fundamental value of the shares into account at all. Shares are not like art works, collectables, bitcoin, etc, which are just worth whatever people are willing to pay for them. Companies (and therefore their shares) have a fundamental value, based on the fact that ultimately they make profits which they pay out to shareholders in the form of dividends. If a company grew to the size of Apple and then went bust without ever paying out any dividends, it would have been a complete loss to its shareholders in aggregate. Some shareholders might have made money by buying low and selling high. But those gains would have been at the expense of other shareholders who lost money in the bust. Anyone who bought low and held until the bust would have seen massive paper gains over the years, but those paper gains would all have disappeared in the bust.
When a stock market is overpriced relative to the fundamental value of the stocks, there will eventually be a correction back to the fundamental value (also known as 'reversion to the mean'). In fact usually markets overshoot in the other direction, and become undervalued for a while. This can result in a 'lost decade' (or longer), over which the market produces zero total return. No one knows when the correction will come. But it has always come eventually, and it would be unwise to assume that this time will be different.
I've just been reading this article, which you might find interesting:
https://www.hussmanfunds.com/comment/mc240101/
When there's a correction in the S&P500, there will probably be one in the FTSE too, but it will likely be less severe, because the FTSE is much less overpriced. It will likely be even less severe if you're invested in under-priced shares that pay a good sustainable dividend, and those shares will probably not have a 'lost decade' because they should make a significant return from dividends even if there's no gain in share price.
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