wow, look how often stocks underperform inflation

Putting all of your money into stocks is foolish. If it were brilliant, then financial advisors wouldn't tell older people to cut back on their stocks in their later years.

Yet, I've seen in the past 36 hours people actually say that real estate that went up 17% recently was a bad bet because that money could have otherwise been placed into stocks.

Agree 100%. Stocks can have periods of high price volatility. When the Fed ends quantitative easing it's highly probable that stocks pull back. The better bet for now is high quality short to medium duration tax free bonds which earn more than cash have a taxable equivalent yield equal to or superior to government bonds and have the virtue of preserving one's capital. The time to have bought stocks was DOW 8000, and not now when everyone is bullish.

Also if one assumes that we'll be in for a decade of below average GDP growth(real estate will not be a driver here) and that the market reverts to its normal cyclically adjusted P.E ratio then the it's just hard to see stocks being competitive. I see bonds not doing great, and stocks doing even worse. If you have to buy stocks you want high quality large cap + exposure to some International.

John Hussman has stocks returning 3.6%(optimistic forecast) annual over the next ten years. If that turns out to be true, why not take bonds which provide the same return with less risk?

Five in a row.

Who is John Hussman?

What does he actually say about bonds?

Why not diversify across asset classes, one of the few proven investment strategies?

But I should note that even Hussman is worried about inflation in the medium term. So I don't think he's going to be taking much duration risk (and in fact has almost no positions on in his bond fund currently).

Oh, I felt surely you would have read his weekly commentary at hussmanfunds.com. He's a better analyst than investor, one might argue.

Asset allocation makes a great deal of sense. It brings discipline and reduces risk. Also one thing missing from the discussion of stocks ,bonds, commodities, cash is where one is in life and what cash flow needs are expected. Bill Gross was just asked how much he has in stocks and he answered only 50% since he's in his 60's.

plus four more

Oh, I felt surely you would have read his weekly commentary at hussmanfunds.com

The performance figures back that up. However the risk adjusted returns are probably far better. Most money managers give mere lip service to "Alpha"

plus four more what, apt23?...this is a substantive thread; are you trying to inject something else?

Hard to believe that Bill Gross is worried about the risk of not having sufficient funds for retirement.

apt23: you have a record of numerous adhominem attacks on people that don't agree with you on substantive issues...so drop snide comments (that make no sense), please...and comment on the discussion or ignore the thread, as you wish...

apt23 didnt even post anything related to this discussion, who does he disagree with?

Another large problem I have with stocks as an asset class is I don't see who will be buying them going forward. With baby-boomers set to start retiring in mass over coming decade(s), I don't see the same source of funds going into them as in years past. Frankly I think 50% stock allocation is high. Only way I could see doing that is if half of that 50% were invested outside the U.S.

Are you a CFA?

No. But I have a fair amount of exposure.

17 in a row and counting

You have fair exposure to stocks, so you are an expert?

I prefer to use the term well read and still learning. Lately I've grown fond of Grantham and Hussman. I'm actually more of a bond guy.

19

Keep in mind that bonds can also underperform inflation for very long periods of time also. What a lousy investment bonds were from 1940 to 1980!

And cash, with a zero return today, is not a particularly attractive alternative.

Thus, the dilemna.

For now, I agree with Ned Davis that we are in a cyclical bull (equity) market within a secular bear (equity) market. Enjoy for now. But expect to reduce equity exposure later in the new year.

Ned's view is also that we are in both a cyclical and secular bull market for emerging market equities. But keep in mind that many of the great global developed world multinationals are also heavily invested in emerging markets and should fare pretty well over the longer term. Many are selling at 10 to 14 times earnings and represent extraordinary value.

I do respect Jeremy Grantham. Just think he's a bit early with his gloominess. But the retiring Boomers will be a big challenge as entitlement spending explodes.

Ah, the old Chinese curse. May you live in interesting times. Indeed.

Enjoy!

"And cash, with a zero return today, is not a particularly attractive alternative."

Well, agreed, but on the other hand letting these absurdly low interest rates (imho)[an anomaly, cried one seer, not without mucho merit] distort your risk/reward analysis is also problematic. Bonds suck (inflation beckons), stocks have a lot of issues as well. Macro risks abound. It all sucks....I would like to see the apocalypse in europe, break up the EU (or at least euro), defaults with USA munis and states and restructure the absurd pensions, finally cut ridiculous programs from the federal budget,,etc..so we can become a more efficient market

Yes, there are grounds for "longer term" cautiousness.

But I know how easy it is to be sucked into a world of "gloom and doom."

I make a point of keeping on my desk a copy of "Triumph of the Optimists: 101 Years of Global Investment Returns" by Dimson, et al, as a reminder that stocks have often climbed a "wall of worry." A classic.

Yes there are big problems lurking out there. But I keep asking myself, where are the opportunities? Where are the opportunities? And they are legion.

If you looked at all of the buildings that were in NYC in 1995, according to some the last time that real estate values in NYC were "great", each and every one of those buildings that you would have seen up at that time in 1995 was built by an optimist who believed in the future.

Yup.

But I'm not convinced that NYC is where the great values are today. Not when the price-to-rent ratios are 25+.

But when I can buy emerging market stocks at 11 times earnings I salivate. When I can buy great global multimationals at 10- 14 times earnings I salivate.

I'd love to buy NYC real estate. It just seems so fully (or over) priced. Would love if you could convince me otherwise!

More than fair point of view.

Riversider= huntersburg=buyerbuyer

Flmaoz. What a tool. You write like someone I know. Flmaoz. Tough being a troll trying to behave. Flmaoz.

Come on. Be a prick. Or a cunt. Either case a loon on SE.

Topper, If I were making an investment I would agree on the emerging stock allocation, but emerging stocks won't put a roof over my head. If I were to chose between an investment property in NY and emerging stocks, the latter would win out. To make the investment case real estate would need to offer a decent cap rate. Of course emerging market stocks come with a much higher risk number than a Manhattan Condo.

This same chart, with RE subbed for stocks, would show RE as a much worse investment over the same long time frame.

I believe Jason (how's your lip by the way?) that one of the assumptions through around 2006 or so was that real estate never went down.

Only to be replaced with stocks cannot go down as long as the Fed is supporting prices.

Who on this board or anywhere on Earth has EVER said stocks never go down?

Turn on the business channels and listen to the "pundits"

rivermoron, with all his names, says so little in so many words

say something definitive so i may immediately fade you

http://3.bp.blogspot.com/_nSTO-vZpSgc/TSOjKMxhREI/AAAAAAAAKKw/yAgkUtOFKdM/s1600/S%2526P%2B500%2BPE%2BRatios.png

http://2.bp.blogspot.com/_nSTO-vZpSgc/TEUp92nThjI/AAAAAAAAI5g/5rVsQ3SvkO4/s1600/McKinsey+estimates+1.png

Riversider: Nice and concise.
You post under different names? As if nobody else on SE does that.

jason: Bernie Madoff.

Truth,..
No I don't.

jason: Bernie Madoff.

..good point...lol

Stocks look very speculative here. To the bulls: I usually call this stuff early.

Riverside, re: McKinsey estimates 1.png

Only one per year? Talk about low count. No wonder the chart from the OP show that investing in stocks doesn't seem to bear any fruits.

Been thinking about that Sunday....

There is a tendency for stock analysts to become overly optimistic. I think this is why many fund managers compare the stock forecasts in total to a macro view to examine divergence. Also think the forward earnings model is very upwardly biased.

Riversider: It really doesn't matter. Just pointing out the obvious.

buyerbuyer: Yes, makes me laugh, too.
It's not whomever claims that stocks don't go down; but rather: Who believes in that a return that Bernie kept telling them: "Don't worry, just trust me."

Riversider lives to point out the obvious.

Oh, there's CC. No surprise.

Perhaps you have a friend that can read my comment to you.

Diversification ++
Market Timing --

Yup.

Riversider.

It's confirmed.

You've won the obvious award.

huntersburg: Are you new here? Don't recall your comments, since I've been on here, late Feb. of 2010.
But I like your comments.

Of course you do.

Riversider

Hunters burg

Etc

Etc

What in particular did you like about the latest?

Truth, probably posted a couple months, interesting topics here, none too personal tho.