executive options

[Christian A. Gregory]

> But if stock market returns are proportional to profits, and profits can
> only grow over the long run at the same rate as GDP growth (because if
> they outsripped it consistently, eventually they would outstrip GDP), that
> seems to mean it's impossible for the stock market to generate an
> historical average return that's greater than GDP growth over the long
> run.  But hasn't it done just that, by historically returning 6%?

Maybe I'm missing something here. Where did the assumption that stock
returns are proportional to profits come in? I know that they are assumed to
have something to do with one another in the long run. But wouldn't the
contradictory motives and assumptions of investors (i.e. that the short run
matters most for the market--ie. the expectations about expectations over
the long run) have something to do with the "abnormal" rate of stock return
over the long run? Put plainly, isn't stock essentially about making "noise"
work to your advantage?

All best
Christian