Reversion to the Mean

• The economist Jeremy Siegel is often given credit for revealing the fact that stocks over the long run, since as far back as 1802, have averaged an annual real rate of return of 7 percent. The stock market has often given a much higher return than this, and often much lower, but over the long term it has reverted to this average mean. Over a long period of time the stock market has proven to follow certain patterns.
  
  

Large Companies

• An investment in a large company that already has an established earnings method is generally considered to be a more reliable investment. A general investment in large companies in any year is considered to give a rate of return on average of 10 percent. How far an investment will differ from this mean will depend on a variety of factors having to do with the general state of the economy and the particular company involved.
  
  

Economic Growth

• Average stock returns are directly affected by the growth of the general economy. The value of stock in a company is determined by its earnings. The earnings growth of the companies traded on the stock market cannot for any long period of time exceed the growth in the greater economy. What the average rate of return for stocks will be in the future will depend to a large degree on future economic growth rates.
  
  

Efficient Market Hypothesis

• According to the efficient market hypothesis, it is impossible for any investor to consistently make higher returns than the general stock market. This is because the market is supposed to be already a very efficient information processing system that very effectively evaluates the value of stocks. Economists debate the extent to which this theory is true, but most agree that it is very unlikely an investor will consistently beat average returns on the stock market.