Exponential growth in the stock market is a mathematical myth that rarely happens for actual investors.
Asset trajectories show that most global stocks exhibit linear growth rather than the compound interest everyone expects. Financial advisors teach that patient reinvestment leads to a sudden and massive explosion of wealth. Empirical data from 73 stocks proves that this narrative does not match the historical reality of most assets. Investors who wait for a magic hockey-stick curve are often disappointed by steady, flat progress. This challenges the common sense of long-term investing by showing the math of the real world is much slower.
Exponentiality is Not an Assumption: An Ex-Post Valuation Model Based on Observed Asset Trajectories
SSRN · 6585878
<div> The narrative that investing in stocks is equivalent to harnessing compound interest suggests that patient reinvestment would lead to exponential growth of wealth. This paper challenges this premise by proposing a simple yet overlooked metric: the Temporal Exponentiality Factor (E). To compute E, two models are fitted to the same price series – a linear model and an exponential model (via logarithmic regression, with predictions converted back to the original scale) – and their coefficient