[quote=pri_dk]…Do you know of something that grows faster than the general economy, consistently, over the long term? If you do, then go for it.[/quote]
Afraid not, pri_dk, except maybe for the dimness of my eyesight. But it’s hard to invest in that.
My antennae were tweaked when you mentioned a 10% return growing at 3% a year. Most people do value stocks by looking at earnings, and I figured that you must be looking at earnings, because your 10% was way too high a number for dividends or other cash payouts. I was just pointing out that valuing stocks by looking at earnings is, in the aggregate, useless.
If the universe of stocks is reporting earnings, in the aggregate, of 10% of the stock price, but always pays dividends of just 1% of the stock price, then the aggregate real value of stocks is only half of their value if dividends are 2% and earnings are only 6%. Why? Because in the long run, the growth in the earnings and dividends in the aggregate will follow the economy, regardless of how much of annual earnings are reinvested each year. Yes, if every company invests heavily in the future, then the total growth rate in th economy should be greater, but there is a bias leading people to rely too much on that assumption.
