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https://humbledollar.com/2023/07/courage-required/)
William Bernstein | Jul 22, 2023
EVEN AFTER BEAR markets in 2020 and 2022, investors’ appetite for stocks remains as robust as ever. But what if stocks had not just a rough year or two, but a dismal stretch that lasted more than a decade? Below is an excerpt from the second edition of my book The Four Pillars of Investing, which was published earlier this month.
In August 1979, BusinessWeek ran a cover story with the headline “The Death of Equities,” and few had trouble believing it. The Dow Jones Industrial Average, which had toyed with the 1,000 level in January 1973, was now trading at 875 six-and-a-half years later. Worse, inflation was running at almost 9%. A dollar invested in the stock market in 1973 purchased just 71 cents of consumer goods, even allowing for reinvested dividends.
According to the article, “The masses long ago switched from stocks to investments having higher yields and more protection from inflation. Now the pension funds—the market’s last hope—have won permission to quit stocks and bonds for real estate, futures, gold, and even diamonds. The death of equities looks like an almost permanent condition—reversible someday, but not soon.”
Contrast today’s universal acceptance of stock investing with the sentiment described in the BusinessWeek article, when diamonds, gold and real estate were all the rage. The price of the yellow metal had risen from $35 an ounce in 1968 to more than $500 in 1979 and would peak at more than $800 the following year, equal to roughly $3,000 in today’s dollars. Still, there are similarities between the 1970s and today. Now the wise and lucky own houses in cities with desirable real estate. Back then, those who had purchased their houses for a song in the 1950s and 1960s were by 1980 sitting on real capital wealth beyond their wildest dreams. Stocks and bonds? “Paper assets,” sneered the conventional wisdom.
Comments
Doesn’t really deserve a response. Article exhibits gross oversimplification. “Stocks” can mean anything from the cap-weighted / tech-heavy S&P 500 to frontier markets like Laos or Nigeria. I suspect they mean the S&P. Woe is he who thinks the S&P 500 or U.S. large caps stocks the only things worth investing in. I guess such people deserve whatever they get.
@Tarwheel says it well above.
Diversifying did not help much either, and I'm talking meaningfully about extra performance. There is a good reason why Bogle build the Vanguard Empire, it was based mainly on VOO or VTI for stocks. Buffet tells the same story.
The SP500 lost money in 10 years during 2000-2010, mainly because of the excessive performance of 1995-2000 when the SP500 made 250% in 5 years which is 28+% average annually (link).
Can the SP500 go sideways for years? Of course, it can. Are you going to switch to the right categories?
Not picking on you. Just tired of every Tom, Dick and Harry talking or writing about ”the stock market” as if it were all one big single entity. Kripes. How about some attention to specifics when so writing? There are of course many many different stock markets.
Stocks for rifles, stock for soup, and stocks for punishing wiseass troublemakers come to mind.
Seek and ye shall find: VEXAX / VXF invests in the S&P 500 Completion Index. Whether completely avoiding stocks in the S&P 500 is a good idea or not is a different question. https://www.spglobal.com/spdji/en/indices/equity/sp-completion-index-ci
https://www.morningstar.ca/ca/news/191057/this-etf-and-the-sp-500-make-a-good-pair.aspx
Well … I didn’t mean that quite literally … No intent here to avoid them completely. For example, DODBX likely has some exposure to the S&P. That alone wouldn’t deter me from owning it. I don’t think they’re especially enamored by it either, having held a small (2-3%) short position on the S&P within the past couple years. And they may well be hedging S&P exposure with some other holdings.
What would be helpful would be an app or website that would analyze a given fund and sort out for simplicity the % of assets it currently has in components of the S&P 500.
There are several:
For SP500, completion indexes are VEXAX/ VXF, FSMAX, USMIX. They use different definitions of total stock markets.
BTW, R1000/IWB has completion index R2000/IWM, with total market being R3000.
A free membership gets you the complete list. I haven't tried it out yet.
Goldman: Stock valuations are justified, even in the face of rising rates (link). Very Typical to get these predictions after a rally. Just as we got similar views at the end of 2022, when VALUE was better than growth, and many "experts" predicted that VALUE supposes to be better...just to find out in 2023 that growth hugely led.
Today I cancelled a subscription to a newsletter that’s been so upside down the past year it ain’t funny. Told folks to sell / reduce exposure to stocks just before the late ‘22 & early ‘23 rally. Than changed that to a buy recommendation just before everything dipped. Than said sell again before things really took off for the sky. Now he says buy!
I didn’t just fall off the turnip truck ya know!
Good thread.
Not a bad idea, however.
I don't know why you are surprised that we agree on something. Over the years I got thousands of private emails where I helped these people with any questions from small to a full portfolio, all for FREE, based on THEIR risk, goals, and want. I don't promote or discuss my unique system with them, actually, I tell them not to use it.
Ditto.
Isn't one's portfolio to draw from? If so what matter does it make if the market is not good? Is the goal to only grow a portfolio and never use it until you die?
Drawing from a portfolio doesn't justify owning income stocks because total performance matters more. Just because ATT+IBM paid a lot more income in 2010, if you own them instead of MSFT, you make a huge mistake.
What's going to be next? I don't have an idea. I know what worked for me, but I'm not going to discuss it, looks like no one is interested to know it.
The S&P 500 yield was aaout 1.6% during 2000-2010. The 10 year treasury was yielding an average of 4% during the same time frame. I think I could have lived on the income of a 50-50 portfolio during that period.
In the last 5 years, PDI paid about 50% of income in the last 5 years but was up less than 4%. So, 50% income sounds great but less than 4% is a bad performance, especially when the no-brainer SPY made 74%.
I hold a good chunk of PDI, thankfully above water. It's a matter of buying it at the right time under the right conditions. I use the generous monthly distributions to feed equity positions in the S&P500 and the QQQ's. Is my total return being met even though I hold that loser PDI? Not looking for an answer, to each their own as even you have acknowledged.
The DJI is setting some records for consecutive “up” days. Amazing.
Exactly.
Create a good investment plan you can adhere to (seek assistance if needed) regardless of market conditions.
Risk capacity, risk tolerance, investing experience, goals, and preferences should be considered.
Investment plans should be tailored to each unique individual.
Thanks , Derf
PS Now I'm wondering how this works
out over ten years if one started in
2021
I hear how bad returns were 2000-2010. I was an accumulator then so I did OK buying shares. But as a retiree you still did OK.
Are you all excited about indexing? Tech? Bio-Tech? Did your parents, or grand parents, give you any advice? Have you read any books about investing? Malakiel? Maybe you picked up an AAII pamphlet at a used bookstore? Adam Smith/George Goodman? Assume a can opener.
Lump-sum $1,000,000
Period 1/1/2000 - 6/30/23
All distributions reinvested.
Monthly withdrawals $4167/mo initial + COLA (or $50,000/yr initial + COLA); also a column for without COLA (in the PV Run With COLA, just change Inflation-Adjusted to NO).
Final Values
Portfolio, With COLA, Without COLA
50% SPY + 50% VBMFX, 226,523, 940,574
VBINX 60-40, 174,397, 935,570
VWELX 62-38, 1,554,586 2,354,730
PV Run With COLA