Vic, some time ago you made a comment about the market's drift and the analogy with Bacon's cycles, in that the entrepreneurs require a 10% return over the long-term and the public as a whole must always lose the vig. Intuitively it makes sense, and it's hard to argue with Dimson et al's data too, but my thinking breaks down when I try to define the parametres in the market model. At the racetrack we know who collects the vig and how, but what's the equivalent in the market? The crowd selling to the point of 10% in expectation? But then how do you capture it if you held, since the new entry point is lower? Could you shed some light on this, or it was just an off-hand comment and I should stop wrecking my brain?

Victor Niederhoffer replies: 

Thanks for your thoughtful comment. The return on capital is 15% for most companies and that compares to a 2% 10 year rate. That's enough to give a 10% return especially since companies grow profits by 5% a year. Dimson always questions whether the future can be comparable to the past because of dividend yields low. I don't buy that. Compounding the difference between 15% and 2% is enough. The companies are smart. They know how to get handouts from the government. As for the vig, there is no vig is you buy and hold. I like to buy spiders whenever there is disaster in the air, and that often gives me the vig. 


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