After all the hype-the truth speaks for itself

Goldman, that gold standard of wise advice, issued a new report today arguing that equities are the epic buy of a “generation”. This is no surprise from the Muppet masters, as they have been pumping and dumping on an unsuspecting public every year since the firm went public in 1999.   Stocks throughout have had negative returns relative to bonds as shown in this chart.

Even with very solid returns in bonds over the past decade, those following the conventional wisdom on prudent, conservative, portfolio management with a 50-50 balanced, passive approach have managed to make negative returns since at least 2000 courtesy of their stock exposure.  This next summary of returns on a balanced portfolio to the end of 2011 (before fees) speaks for itself.

Those who had higher stock exposure and those adding significant contributions near market peaks like the late 90’s or 2005-2007, 2010, 2011 are likely much further into negative returns over this period.

One of these days boy, being über bullish on stocks will be an excellent call, but history assures us it will not start, when like today, stock valuations remain near historic highs, dividend yields are at historic lows, Central banks have prolapsed financial stability gobbling up bad assets while bankers are still calling the shots in keeping toxic waste hidden from the honesty of market pricing.

Goldman and other risk-sellers argue that since central banks have forced down interest rates near the zero bond, pathetically low stock yields are an exciting booby prize in a field of ugly options. A breath mint reward recommended for risking loss of limb. Self-preservation demands that we not bite this bait so that sell-side fishermen may eat.  History promises that truly attractive offers will come to those who wait.

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10 Responses to After all the hype-the truth speaks for itself

  1. Are dividends really at historic lows? There are quite a few blue chip canadian stocks paying 4% or more (although I am too afraid to buy them as everyone is saying the sky is about to fall).

  2. bullion.bunny says:

    Danielle…….the purpose of Goldman was to generate fees. Goldman works as designed!

  3. John says:

    Lately, we’ve been hearing more and more opinions that we are now in a secular bull market. On the flip side, Bob Prechter has been calling for the next big wave down in stocks since August ’09, with call after call after call to short the S&P, and he’s been wrong every time.

    It seems too many people are still waiting for another major correction. Retail investors seem to have all but given up on stocks as fund outflows continue. It certainly feels like we are still in a secular bear market, but stocks still seem to be climbing a wall of worry.

    Are stocks cheap? Expensive? Or fairly valued? I’ve heard opinions for all three. Markets are like Rorschach tests. Everyone sees what they want to see. Though I generally have greater faith in Danielle’s opinion that most analysts. Jeff Saut (that master of Dow Theory) is actually very good too, if you know how to read him.

    I do not make predictions on stock markets (I’ve never seen an analyst, money manager or economist who can consistently time the market, and believe me I’ve looked, so why should I presume to be any smarter) but given what I learned from reading Jens O. Parson (that liquidity will drive markets higher until money starts to actually flow back into the real economy) I would not be surprised to see this rally climb until the S&P reaches an all-time high. For precedence, look to the ’66 to ’82 bear market.

    And make sure you are buckled in.

  4. ed says:

    Are you and Michael Campbell parting ways? He’s now calling for a major bull move in equities and commodities as investors refuse to fund government debt and all the money on the sidelines needs to go somewhere. He says to become at least 50% invested in the next 4 months. You seem to be continuing with your bearish scenario.

  5. That is like saying monkeys need bananas to live, but we believe they will soon turn away from bananas to eat cotton candy as an act of protest.

  6. stone merchant says:

    And may bananas turn ever so golden, its shine blinds me ever so….monkeys!

  7. stone merchant says:

    The bear always seeks to send as many investors to their doom as possible, and it is my humble opinion that the bear (we all know who the bear is) is doing that right now. Load the train, then send it down the mountain (new highs) with as many people as possible. I remain defensive, and disciplined.

  8. Slowmoney says:

    I’ll take that 0.24% compounded return, thank you very much. Sounds crazy, but if that’s the worst decade I have in my investing lifetime, and the next few decades are kinder to a passive, low-cost, balanced portfolio (say 5-7%), then I’ll average mid single digits and beat inflation with virtually no effort. And isn’t that the purpose of investing?
    Danielle – your professionalism, sober analysis, and critique of an investment industry that’s lost it’s (fiduciary) way is refreshing. Keep it up. But where is the evidence that the market-timers, the chartists, the long/shorts, and the active investors can – on average – do any better over time than a passive, balanced portfolio? I’ve never seen it. It’s probably the same grim reality as we find in the mutual fund world – the vast majority of active managers under-perform over 10 and 20 year periods, especially when you control for survivor bias. With the exception of a few smart (or lucky?) ones – usually the contrarian value managers – most bright, hard-working and well-intentioned investors are no match for “the market” – the complex, discounting machine that IS the sum total of all the investors in the world.

  9. It is hard, but better returns can and have been achieved with a fraction of the volatility. See this:

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