Markets have been on a tear—racking up consecutive 20%+ years for only the third time in 75 years. The real question isn't whether the rally will continue, but whether your financial plan is built to withstand whatever comes next.
This piece offers a vital lesson in mean reversion, illustrating that while the S&P 500 averages 10% annually, it rarely delivers that specific number in any given year. By highlighting that the 15.2% returns seen since 2009 are 50% above the historical norm, DeStefano effectively argues that "gravity" eventually pulls outsized gains back toward the long-term trend line.
To what extent could structural shifts—like AI-driven productivity or the "Roaring 2020s" thesis—actually redefine a new "permanent mean" for market returns, rather than just delaying an inevitable correction to the old one?
Great question. Structural shifts can absolutely change long-term trends, but they take decades of data to confirm, not a few years of outperformance. The 10% historical average spans nearly a century of wars, depressions, regime changes, and technological revolutions including railroads, electricity, computing, and the internet. AI could be transformative, but we'd need many consecutive years of sustained higher returns to mathematically shift that mean.
The 'permanent mean' language is interesting. It's almost identical to economist Irving Fisher declaring a 'permanent high plateau' days before the 1929 crash. Every technological revolution gets declared permanent at exactly the moment caution would serve better. No one knows what’s coming down the road, but the one thing I'll say for sure, the future will be interesting!
This piece offers a vital lesson in mean reversion, illustrating that while the S&P 500 averages 10% annually, it rarely delivers that specific number in any given year. By highlighting that the 15.2% returns seen since 2009 are 50% above the historical norm, DeStefano effectively argues that "gravity" eventually pulls outsized gains back toward the long-term trend line.
To what extent could structural shifts—like AI-driven productivity or the "Roaring 2020s" thesis—actually redefine a new "permanent mean" for market returns, rather than just delaying an inevitable correction to the old one?
Great question. Structural shifts can absolutely change long-term trends, but they take decades of data to confirm, not a few years of outperformance. The 10% historical average spans nearly a century of wars, depressions, regime changes, and technological revolutions including railroads, electricity, computing, and the internet. AI could be transformative, but we'd need many consecutive years of sustained higher returns to mathematically shift that mean.
The 'permanent mean' language is interesting. It's almost identical to economist Irving Fisher declaring a 'permanent high plateau' days before the 1929 crash. Every technological revolution gets declared permanent at exactly the moment caution would serve better. No one knows what’s coming down the road, but the one thing I'll say for sure, the future will be interesting!
I enjoyed the read.
In particular, to be careful around headline averages and to right size expectations after the recent years great performance
Thank you🙏