executive options

Christian A. Gregory christian11 at mindspring.com
Wed Apr 5 11:06:15 PDT 2000



> 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



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