No wonder you can't figure it out. The question you ask is not related to the assertion you doubt. you might have a point if you thought the adage went "stocks go up in the long run even relative to inflation"
I guessed $150,000 and I was high. $116,491 so roughly 12x Totally believable. Until this last decade in stocks and the last few years in housing, neither investment appreciated at a rate any greater than CPI. Ironically the recent explosion in asset prices has come in a very benign inflation environment.
It's really simple. Stocks represent the economy. So long the economy grows (in real term, inflation adjusted), stocks will provide real return. If you take all possible stocks out there, blue chips, penny stocks, etc. their aggregate return can not be higher then GDP growth (on the long term, short term sentiment is changing from manic to depressive). The real GDP growth has been around 3.5% in the past few decades. So we start from there. Next we add inflation, another 3-3.5% Now we have 7% nominal return. Next when we add survival bias with stocks in the index we arrive with famous 10-11% nominal return.
I'd like to give some fundamental input to this. There are two major undisputable trends: scientific progress and integration of global markets I'd like to picture that as a number of connected pools. The pools grow, and the connections grow until there is a final merger. What does that mean: -"Big Fishes" will be larger than they are now.(i.e. Toyota) -Market entry hurdles for markets of existing products and services will be higher. ( A function of the minimum infrastructure you have to set up to compete in a global market.) Market entry hurdles ultimately define profit potential. - Intermediate size firms will die out. (Yes, that does include GM. Muscle is relevant, not body fat.) - Well rooted, small global specialists will be relatively most successful (i.e. Porsche) Conclusions: I hold that random stock picking does not break even. Random stock picking with a functional stop loss (random index following) should. The losers will be comparatively few but large. Avoiding them shouldn't be that hard.
You guys can't see the forest for the trees. Here is the simple answer, and I do beg any of you to PROVE me wrong: ultimately over the long run as t => infinity, stocks => 0. Edit: Excluding payout from dividends of course.
I actually had the same theory, I was thinking that the increased valuation of the stocks caused the "growth" rather than earnings performance. I'm guessing a good way to test this theory would be to obtain a historic chart of average earnings increase %'s of stocks within the market and another chart showing the average P/E ratio. This would tell us whether there was true growth (greater earnings) or whether the market "grew" simply because investors valued stocks higher.