Comments on: Another ‘lost decade’ is a possibility

By: This and That: Investing ain’t Rocket Science and more… | Canadian Capitalist

Fri, 03 Dec 2010 04:15:03 +0000

[...] Million Dollar Journey featured a guest post that says investors shouldn’t forget that stock markets also go up. While I buy the claim that stocks are suitable investments for the long-term, beware any claims that stock markets don’t have two losing decades in a row. [...]

By: Finanical Ramblings

Finanical Ramblings — Sat, 13 Feb 2010 15:47:11 +0000

[...] Capitalist thinks another “lost decade” is possible. This would make my life as a financial planner very… very… very [...]

By: Weekly Round Up – Olympics Edition

Weekly Round Up – Olympics Edition — Fri, 12 Feb 2010 11:02:31 +0000

[...] "3635", "http://financialhighway.com&quot ; Another Lost Decade @ The Canadian [...]

By: Canadian Capitalist

Canadian Capitalist — Tue, 09 Feb 2010 21:05:03 +0000

@Basil2: The ‘lost’ decade is strictly in the context of US stocks. The past decade wasn’t lost at all for Canadian stocks. This again goes to the heart of diversification. Owning multiple asset classes helps mitigate the risk of poor performance of one asset class over a long stretch.

@2 cents: True, Grantham is a half-empty kinda guy but modest returns going forward is hardly a unique viewpoint. Buffet has been saying the same thing for years. As has Bogle. With a 2% dividend yield and a 4% earnings growth rate, it is no surprise that equity returns can be rather modest.

@TEMPLE: I’m not giving up on US stocks either. First, I’m investing for 2030, not 2020. Second, as you point out, if interest rates keep staying low, stock valuations could remain high for a long time. Which means, you’ll get 4% with bonds and 7% with stocks. That 3% difference is still worthwhile.

That said, I’m a bit skeptical of stock market prognostications based on the theory of “it’s never happened before”.

By: Henry

Henry — Tue, 09 Feb 2010 18:25:24 +0000

Risk free rate is very low, whether you use 91 T bill rate, 5 yr bond, or 10 yr bond. In other words, bonds are very expensive. It could be argued that there is more likely of a risk premium by investing into the equity markets.

Concerns of a lost decade can be addressed by using a SMA200 strategy on major asset classes. A Quantitative Approach to Tactical Asset Allocation by Mebane Faber offers some evidence this strategy may help with secular bear markets. http://ssrn.com/abstract=962461 The strategy may not necessary increase returns according to the author, but it can reduce risk by avoiding some of large corrections that asset classes experience. To me, SMA200 is must use for any leveraged investing like the Smith Maneuver.

By: TEMPLE

TEMPLE — Tue, 09 Feb 2010 16:20:28 +0000

A couple things to note. First, 1.3% in real terms isn’t horrible. I mean, I’m not going to walk around cheering about 1.3%, but in real terms, there isn’t much that can do better at this point. This is especially true when you factor in the ease of indexing. That means that stocks are still going to be the place to be in the next decade, despite the potential for meagre returns.

Second, just about any stock market prediction gives me a raging case of punditosis. I just don’t have a lot of confidence in predictions. The fact is, stocks outperform all other asset classes in the long run, and as a consequence, I don’t think I will change my investing strategy based on Grantham’s predictions. Besides, there are compelling arguments that suggest an expansion in the PE multiple is justified, so assuming low returns based on historical PEs seems like an unsophisticated methodology.

TEMPLE

By: Thicken My Wallet

Thicken My Wallet — Tue, 09 Feb 2010 14:48:20 +0000

I look at Japan through a demographic lenses. The population is declining and they have no real immigration.

By: Al (different Al)

Al (different Al) — Tue, 09 Feb 2010 14:37:26 +0000

2 cents asked:

“Why has Japan not been able to produce any meaningful inflation for decades, while a country like Zimbabwe went all the way toward hyperinflation relatively quickly?”

In Niall Ferguson’s book ‘Ascent of Money’, he says something to the effect of:

Inflation is a result of monetary policiy, hyperinflation is about government policy. (I believe he was citing another earlier economist.)

Japan may have expanded its money supply, but it was used to recapitalize the banks instead of making it into the hands of spenders. But had they been successful, it would have been a monetary phenomenon.

Zimbabwe had hyperinflation because there was no faith in the government.

Not a thorough answer, but

By: Ranger

Ranger — Tue, 09 Feb 2010 06:29:30 +0000

I think that Fred said it well: decide on an investment strategy that matches your personality. Whenever I think about ditching the ETF’s and going it with stocks I always wonder “if it is so easy to beat the market why aren’t all those brilliant mutual fund managers succeeding?”. I also feel that when looking at 10 year windows, or any time period beyond there are a number of good performing mutuals, or, rather the TSX didn’t do as well. I think this is the Nortel effect when it occupied a huge chink of the TSX. Nortel and the dotcom bubble had a huge and disastrous effect on the TSX. Yes, the markets may not do very well for the next 10 years. That is why we try to be balanced in our investments. I still think the slow and steady is the best way to secure retirement and have a life while you are getting there.

By: Gwerst

Gwerst — Tue, 09 Feb 2010 05:35:39 +0000

Isn’t this where dollar cost averaging would help you come out ahead?
After the market isn’t going to be perfectly flat, and by buying consistently through ups and downs around the baseline you build in some profit even if your end point of the index is the same as where you started.