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moneysense.ca, 3/08/12
This and That: Bill Gross, Jeremy Siegel, John Bogle, Burton Malkiel and more…
In his Investment Outlook newsletter Bond King Bill Gross says that the cult of stocks is dying and that expected returns from financial assets are going to be very modest: 2% nominal returns for bonds and 4% nominal return for stocks. Mr. Gross also questions how stocks could have returned an inflation-adjusted 6 percent when economic growth has averaged just 3.5 percent.
In an interview with CNBC, Jeremy Siegel shot back saying that there is nothing un-economic about total stock market returns over the long run being greater than GDP growth. He also says that stocks are relatively undervalued today.
The matter did not end there. Prof. Siegel and Mr. Gross battled it out on Bloomberg TV. Prof. Siegel said Mr. Gross has “the economics wrong”. Mr. Gross responded by saying the good professor’s theory “lacks common sense”.
Wanting to milk this storm in a teacup for all it is worth, Bloomberg TV brought in John Bogle to weigh in on the debate. Mr. Bogle thought that stock returns can be expected to be lower than historical levels but thought that Mr. Gross’s estimate is a bit on the low side. As you may expect from someone who founded Vanguard, Bogle says buying and holding a portfolio of stocks and bonds is not dead at all.
In an interview with the IndexUniverse website, Burton Malkiel says that Treasury bonds are likely to be very bad investments because the debt problems in the developed economies are going to be solved on the backs of the bondholders.
Jason Zweig reports in The Wall Street Journal that retail investors are getting “disgusted” with the stock market in the wake of yet another “flash crash” in many blue chip stocks on Wednesday.
In his column in The Globe and Mail, John Heinzl listed the seven common investor mistakes and offered tips to avoid them.
Preet Banerjee argues that providing updates on how the financial markets performed every day is pointless both for long-term investors and those who make frequent trades.
Canadian Money Forum members weighed in on news that the parent of ING Direct Canada is looking to sell the online bank.
Now for something completely different. The Globe and Mail put together a very nice graphic showing the history of Canadian in the summer Olympic games since 1900. You can sort the medals by year, colour, sport and gender.
moneysense.ca, 3/08/12
Can you re check the Olympic link.
Cal: Thanks again. I swear, I double checked everything before publishing but the gremlins still managed to mangle up one of the links.
I think the whole stock market might be slow to grow over the next few years but there are a lot of high quality dividend stocks paying 4% yields and higher. Load that in a drip so it compounds monthly and you could still see some nice gains. I think the index funds are going to lag as baby boomers start to draw on it.
@Rob: I think stocks are going to post decent single digit returns over the next 10 years. Dividend yields are 2 to 3 percent.
Earnings growth can be expected to range from 2 to 3 percent in real terms.
Therefore assuming valuations stay more or less the same, we can expect between 4 to 6 percent in real terms over the next 10 years. That’s not bad at all especially considering bonds are yielding close to 0 percent in inflation-adjusted terms.
Okay, here is a very naive argument:
Assume we continue to muddle along at 2.2 real GDP growth, that corporate profits as a percent of GDP remain unchanged, and that dividend payout ratios remain the same.
Then, dividends will grow by 2.2% in real terms, or about 4.2% in nominal terms. So annual returns should be the dividend of ~2% per year, plus 4.2% capital appreciation for 6.2% total return. This ignores share buybacks.
I don’t buy that equity returns are driven by economic growth. What matters is return on equity.