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I've started reading The Little Book of Common Sense Investing and in the second chapter, there is a comparison made between two ideas. First is the "cumulative long-term returns earned by U.S. business—the annual dividend yield plus the annual rate of earnings growth”. The second is "the cumulative returns earned by the stock market". Can anyone explain to me the difference between the two?

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First is the "cumulative long-term returns earned by U.S. business—the annual dividend yield plus the annual rate of earnings growth”

That appears to be about a company's finances.

The second is "the cumulative returns earned by the stock market".

That's the (cumulative) growth in the prices of publicly shares of companies.

Note that the second depends on the first: increasing earnings and dividends leads to increasing share price (if for no other reason than more people want the stock) which means that return on investment has increased.

  • I'd recommend waiting 24 hours before accepting any answer. Mine might be wrong, or another one might be better. – RonJohn Mar 18 '18 at 21:24

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