I agree about returns, as that is the only thing that matters, and it is indeed what I eat and consume. But it is returns that I eat, not earnings.For me as the investor, returns are what matters as they control my end result. Returns are controlled by corporate earnings and valuations. In the long run, the effect of corporate earnings dominates, and valuations become unimportant.
If by my theory you mean "Value creation is fundamental to long term equity valuation", I personally find this pretty self evident, a fundamental property of the market, others may not.
The specific or relative valuations/returns between the US and the EU is something that is determined by the markets, which are not subject to or influenced by my theories or expectations.
The various markets are at any specific time over or undervalued and at all times trying to find their "right" value, and it is never understood at a given time which way things are going, so it does not make sense to me to worry about this. I simply do not know if the market is overvalued, has too many "big" companies, is "due" for a correction, or if I am "surprised" at some aspect of the market, etc.
I cannot eat or consume the fact that x companies >100B were created or not, whoever was bored enough to think up that particular statistics.
Historically European, Japanese, and U.S. corporate earnings grew at a similar pace, fluctuating back and forth of course. There was a post just recently in this thread that demonstrated that Japan grew corporate earnings equally fast if not faster than the U.S. in recent years. Somehow they achieved that without obeying the statistics that you are citing and your narrative. I also posted a 134 year scatter chart a few posts up that generally shows very similar return distributions across countries in the long run.
Returns are based on dividends plus what the market perceives as value. I do not know if European, Japanese, or us earnings grew at a similar rate or not. I do know that over the past 50 years, the CAGR for US is about 12%, and the CAGR for Japan is 6.4% and Europe CAGR is 7.5% (for 40 years). All with similar volatility and similar max drawdowns. Japanese corporate earnings may have kept pace with US earnings in recent years, but US retursn have been 6%-10% greater on an annual basis in recent years, depending on what is defined by recent.
This is an immense gap, over a pretty long period of time, and also over very recent time-frames.
I may be incorrect about the reasons why, but these are the facts, at least over the past 50 years. I do firmly believe that value is created by actual people hustling to make fortunes by starting and building companies, and this is where the US excels. And this is confirmed by these "particular" statistics. For the most part, the most ambitious people come to the US to start businesses, they do not go elsewhere. And these are the people that create value, and generate returns.
One may argue that the difference in returns are simply due to higher P/E valuations. And that we are in for a massive correction, relative to Europe and Japan. Maybe so. Maybe not.
All of this may change, we may enter a period where the US does not innovate, and Europe and Japan do, and that will change things.
For me, for better or for worse, I have placed my bets on the dynamism and diversity of the US market.
Statistics: Posted by skeptical — Sat Dec 07, 2024 10:12 am — Replies 7637 — Views 1759606