Where does the 10% figure come from?

Authored by: Certified Sales & Trading Professional - 1st Year AnalystCertified Sales & Trading Pro

Gekko21

Almost Human

13y

Where does 15% tip come from. It's just a nice round number (that fact that it is 2 digits is also nice). It's just something that people feel is a reasonable return that is attainable. Sure everyone would love 15 and 20% returns, but those can't be expected every year and people understand that. You will also notice that in Asia 8% is the key return number.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."

Amphibia

Baboon

13y

Best Response

Sorry about being laconic with the question, I was under impression there was only one widely known 10%. So whenever you talk about the stock market with a guy from the industry or academia, most people will give you a 10% figure for expected annual long-term return. The figure is based on historic average return on the market, 1929-present, most likely market implyingt DJIA first, then SP500.

But does it account for bankruptcies and delistings from the main index? For example, when the value of the company shrinks significantly, it is removed from an index, and replaced with another, more successful one. So if you were to take an index, i.e. SP500, and calculate its historic performance, it will give you an over optimistic figure, since basically you are limiting research to successful companies only, having the benefit of knowing which were successful in the past or not, but not having the same benefit for future.

http://en.wikipedia.org/wiki/Survivorship_bias

Matt the Tiger

Senior Orangutan

13y

Amphibia:
Sorry about being laconic with the question, I was under impression there was only one widely known 10%. So whenever you talk about the stock market with a guy from the industry or academia, most people will give you a 10% figure for expected annual long-term return. The figure is based on historic average return on the market, 1929-present, most likely market implyingt DJIA first, then SP500.
But does it account for bankruptcies and delistings from the main index? For example, when the value of the company shrinks significantly, it is removed from an index, and replaced with another, more successful one. So if you were to take an index, i.e. SP500, and calculate its historic performance, it will give you an over optimistic figure, since basically you are limiting research to successful companies only, having the benefit of knowing which were successful in the past or not, but not having the same benefit for future.

No it does not this is called the survivorship bias.

Authored by: Certified Private Equity Professional - CFOCertified Private Equity Pro

Amphibia

Baboon

13y

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