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"Over most conventional measurement periods, an increase in wealth simply reflects the willingness of other investors to pay a higher price for the assets that you bought somewhat earlier. Seen in those terms, what we like to consider as our wealth has a far more evanescent and transitory character than most of us are ready to admit. What appears to be ours, in other words, is ours only by leave of the rest of the fraternity of investors, not one of whom is in any way committed to paying up for what we hold. They own the option, not each of us as individuals."

---Peter L. Bernstein, "What Is Wealth?", Economics & Portfolio Strategy, December 15, 1996, p. 4.
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Over most conventional measurement periods, an increase in wealth simply reflects the willingness of other investors to pay a higher price for the assets that you bought somewhat earlier.

A few months ago I did the math, took the DJIA & P/E ratio from 1870's, compared it to the DJIA & today's PE ratio, adjusted for inflation and, if memory serves, ended up with an increase in company earnings of about 7x.

All the rest of the growth in the DIJA is due to inflation, or increased PE ratio.
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"Over most conventional measurement periods, an increase in wealth simply reflects the willingness of other investors to pay a higher price for the assets that you bought somewhat earlier.

Yes, but their opinions are not formed in a vacuum. The reason that they are willing to pay a higher price is that (if) the shares you own of the company are worth more than the old price you paid. The base is the economic value of the company.
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I gots some tulip bulbs for sale (and they ain't cheap!).

Tom
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What appears to be ours, in other words, is ours only by leave of the rest of the fraternity of investors, not one of whom is in any way committed to paying up for what we hold.

It looks like this is mainly aimed at stock holdings, which in a simplistic way is a right to a share of the company's earnings in its entire future. So its value really is "whatever someone is willing to pay for it" and isn't automatically valued or priced based on what you paid for it.

But think about other forms of wealth/value:
-Bonds: We (a government, a company) promise to pay you a percentage of the face value each year/quarter, and then give back the face value at the end of the term. Coupon payments can be changed and bonds can be called if interest rates drop. Usually bond holders are the first to get paid when a company goes under, but back in 2009/2010, remember how some companies bond holders were screwed over, like when the US government allowed bankrupt Chrysler to put money into its pensions and abandon bond holders who were legally ahead of the pension in line to be paid. There were many individuals hurt by that, but also some pensions (municipal government plus other companies) that really took a hit.
-Real Estate: You'd *think* that would be a solid if low-returning investment, but look at the farmer owners in South Africa, or even Americans who happened to be in the way of a development and got Eminent Domain'ed out of their property.
-Commodities: Something of real value that's hard to trade in quantities that reflect an individual investor, like I wouldn't own a retirement's amount of steel, oil, pork bellies and orange juice. Tons of money is lost/gained in trading futures in commodities based on not actually holding the commodity contract when it comes due, but in buying/selling based on if the trader thinks it'll be worth more or less in a couple days (or less). Remember all that frenetic activity in "Trading Places."
-Cash: Backed by the faith and credit of the issuing government, its purchasing power erodes with inflation. When I was in Africa, I held millions in local currency because the value had nosedived during a revolution and invasion.
-Gold (plus probably gems): You can't eat it...it's the literal definition "the value is what someone will pay for it." It's had a negative real performance over the very long haul, and in the US was bolstered by a one-time boost from Nixon taking the country off the gold standard in the '70s.
-Food: This is really a huge plus if a region can grow wheat or corn or hogs or something. But, it spoils (usually). Canned food is constantly searched for in every post-apocalyptic movie. That makes a pretty rotten investment in normal times (although it's great to have something on hand when there's a tornado or power outage).

Practically everything's value is based on "what people think it's worth now based on what they believe it'll be worth to someone else in the future." We can even throw in "after taxes" because there are plenty of things that are money losers until you count the tax benefit.
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