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PHILOSOPHICAL ECONOMICS
Personal blog · philosophicaleconomics.comeconomicsbusiness
PHILOSOPHICAL ECONOMICS is a personal blog at philosophicaleconomics.com about economics and business. Since 2014, 48 different Hacker News readers have linked it 77 times, most often “The Single Greatest Predictor of Future Stock Market Returns”. The last post was in 2020, but the archive is still widely read.
Most-linked posts?
- The Single Greatest Predictor of Future Stock Market Returns10 people · 12 mentions · first linked 2017-01-24
- Index Investing Makes Markets and Economies More Efficient (2016)9 people · 10 mentions · first linked 2016-05-02
- The Single Greatest Predictor of Future Stock Market Returns (2013)4 people · 4 mentions · first linked 2024-02-27
- A theoretical approach to short-term trading3 people · 4 mentions · first linked 2016-01-22
- The Paradox of Active Management3 people · 4 mentions · first linked 2016-08-15
- Diversification, Adaptation, and Stock Market Valuation3 people · 4 mentions · first linked 2017-04-06
- Valuation and Stock Market Returns: Adventures in Curve Fitting (2013)3 people · 3 mentions · first linked 2017-08-08
- Future U.S. Equity Returns: A Best-Case Upper Limit [Jan 2018]2 people · 6 mentions · first linked 2018-03-06
- Profit Margins in a “Winner Take All” Economy2 people · 3 mentions · first linked 2015-05-07
- Growth and Trend: A Simple, Powerful Technique for Timing the Stock Market (2016)2 people · 2 mentions · first linked 2018-12-04
What Hacker News says?
You should read the author's next post where he pokes a bit of fun at his metric: http://www.philosophicaleconomics.com/2013/12/valuation-and-...
Comment linking /2013/12/valuation-and-returns-adventures-in-curve-fitting/
on “Show HN: Is the stock market going to crash?”Submitted Index Investing Makes Markets and Economies More Efficient (2016) as a story · 156 points
HN discussionIn the same blog as your reference [1] you can find one of the more thought provoking essays I have read in the last little while. It's a discussion about how easier stock market diversification should lead to permanently higher multiples on earnings. http://www.philosophicaleconomics.com/2017/04/diversificatio... Highly recommended.
Comment linking /2017/04/diversification-adaptation-and-stock-market-valuation/
on “Show HN: Is the stock market going to crash?”Submitted The Impact of Index Investing: A Follow-Up as a story · 115 points
HN discussionIf you're looking for The Single Greatest Predictor of Future Stock Market Returns[1], here it is: http://www.philosophicaleconomics.com/2013/12/the-single-gre... This is a long read, but it's worth it. The metric can be calculated in FRED[2], and as a predictor of future returns, it outperforms all of the most common stock market valuation metrics, including cyclically-adjusted price-earnings (CAPE) ratio[3]. (Basi…
Comment linking /2013/12/the-single-greatest-predictor-of-future-stock-market-returns/
on “Show HN: Is the stock market going to crash?”Submitted Financial Backtesting: A Cautionary Tale as a story · 51 points
HN discussionIf I remember correctly, that was suggested half-jokingly by the author to demonstrate that any metric where the numerator is proportional to the stock market will tend to predict future returns (because of mean-reversion). Edit - here you go: http://www.philosophicaleconomics.com/2013/12/valuation-and-...
Comment linking /2013/12/valuation-and-returns-adventures-in-curve-fitting/
on “Ask HN: What Hacker News comments have you bookmarked?”Submitted Why Is the Shiller CAPE So High? as a story · 6 points
HN discussionPublic tech company's price to earnings does look historically reasonable. And private companies are slowly going public at current valuations. Yet public tech company's earnings to revenue is unusually high. http://www.philosophicaleconomics.com/2015/01/explosion/ Open source doesn't fully explain this, as this alone is not a barrier to entry. As US rates slowly increase, I expect to see an increase in currency hea…
Comment linking /2015/01/explosion/
on “U.S. Tech Funding – What’s Going On?”Submitted Valuation and Stock Market Returns: Adventures in Curve Fitting (2013) as a story · 3 points
HN discussionI've been meaning to read this essay which I believe argues that with index funds so big, prices are determined by the remaining investors who think they know better than the market -- which in theory should mean that the market gets even better information than it has now and determines prices even more accurately: http://www.philosophicaleconomics.com/2016/05/passive/ I'm not 100% sure I understand the argument or…
Comment linking /2016/05/passive/
on “Vanguard Is Growing Faster Than Everybody Else Combined”Submitted The Single Greatest Predictor of Future Stock Market Returns as a story · 3 points
HN discussionTo answer your question, I found this work [1] that uses yield curve information and a basic 200-day moving average. The rule it uses is simple: Go to cash if: (1) yield curve of 10-year treasury minus 2-year treasury has inverted and (2) S&P is below 95% of its 200-day moving average and (3) the next recession has not yet occurred. If in cash, buy if S&P is above 103% of its 200-day moving average. As can be seen,…
Comment linking /2016/01/gtt/
on “The U.S. Yield Curve Has Inverted”Submitted The Single Greatest Predictor of Future Stock Market Returns as a story · 3 points
HN discussionYeah I think the consensus is that 100% passive would be terrible. Jack Bogle's view was that if the market is 50%+ passive indexed that would be bad news. Some folks argue that the number is even more extreme, that passive indexing generally increases efficiency, and that as long as there are even a handful of active investors, the market will still be efficient: http://www.philosophicaleconomics.com/2016/05/passiv…
Comment linking /2017/04/diversification-adaptation-and-stock-market-valuation/
on “Why Index Funds Are Like Subprime CDOs”Submitted Index Investing Makes Markets and Economies More Efficient as a story · 2 points
HN discussionI think we aren't close to the margin where indexing is socially harmful. This article elaborates. http://www.philosophicaleconomics.com/2016/05/passive/
Comment linking /2016/05/passive/
on “Why Index Funds Are Like Subprime CDOs”Submitted Financial Backtesting: A Cautionary Tale as a story · 2 points
HN discussionForecasting 7% long-term real returns from the current state of the S&P 500 ignores the current environment - the S&P 500 is currently priced very highly relative to historical prices. There's an interesting bit of analysis that estimates an upper bound of 3.8% -- 3.95% real returns from US Equities. Worth a read. > Valuations today are in the 97th percentile of all valuations in history and the 83rd percentile of v…
Comment linking /2018/01/future-u-s-equity-returns-a-best-case-upper-limit/
on “Show HN: Investment Calculator – A simple retirement calculator”Submitted A theoretical approach to short-term trading as a story · 2 points
HN discussionPhilosophical Economics has a thoughtful essay on this: https://www.philosophicaleconomics.com/2016/05/passive/ I’m going to argue that the trend towards passive management is not only sustainable, but that it actually increases the accuracy of market prices. It does so by preferentially removing lower-skilled investors from the market fray, thus increasing the average skill level of those investors that remain. It…
Comment linking /2016/05/passive/
on “Can We Survive the Next Financial Crisis?”Submitted Future U.S. Equity Returns: A Best-Case Upper Limit [Jan 2018] as a story · 2 points
HN discussionIf the less informed shareholder move to passive allocations, the market actually gets more efficient: http://www.philosophicaleconomics.com/2016/05/passiveactive/
Comment linking /2016/05/passiveactive/
on “A look behind the scenes at an index fund with Vanguard's Gerry O'Reilly”Submitted The Single Greatest Predictor of Future Stock Market Returns as a story · 2 points
HN discussionYou don't have to wait until the bottom, but it's obviously better to buy assets when they are "cheap" rather than "expensive". Valuation and long-term future returns seem indeed related historically https://www.oppenheimerfunds.com/private-client-groups/artic... For a more detailed treatment: https://personal.vanguard.com/pdf/s338.pdf Of course this kind of arguments are not bullet-proof, see for example: http://ww…
Comment linking /2014/06/critique/
on “In Investing, It’s When You Start and When You Finish (2011)”Submitted Profit Margins, Bayes’ Theorem, and the Dangers of Overconfidence as a story · 2 points
HN discussionUS Middle Class real median household income DOWN : https://research.stlouisfed.org/fred2/series/MEHOINUSA672N Cost of employees as percentage of sales down : http://www.philosophicaleconomics.com/2015/05/profit-margins... Specifically : http://i2.wp.com/www.philosophicaleconomics.com/wp-content/u... labor bargaining power has weakened substantially amid globalization US citizens not as enthusiastic about more immig…
Comment linking /2015/05/profit-margins-in-a-winner-take-all-economy/
on “My Immigration Story”Submitted The Single Greatest Predictor of Future Stock Market Returns (2013) as a story · 2 points
HN discussionThere are much, much better ones: 1) Philosophical Economics' stock/bond/cash preference model: http://www.philosophicaleconomics.com/2013/12/the-single-gre... https://financial-charts.effingapp.com/ 2) John Hussmann's non-financial market cap to gross value added: https://www.hussmanfunds.com/category/comment/ https://www.hussmanfunds.com/comment/mc210715/ But as the sibling comment and all the sources above say, t…
Comment linking /2013/12/the-single-greatest-predictor-of-future-stock-market-returns/
on “The Buffett Indicator”Submitted In Search of the Perfect Recession Indicator as a story · 2 points
HN discussion
