Bob Carlson

August 22, 2012

Reconsidering Stocks for the Long Run

Filed under: Asset Allocation,Investing — Bob @ 12:30 pm

There’s an aggressive debate going on between those who believe stocks still should be the bulk of your portfolio and those who believe investors were sold a scam with the notion of owning primarily stocks for the long run. Bill Gross of PIMCO set up the debate, and others have piled in. The latest is this post from James Bianco reviewing Jeremy Siegel’s book, Stocks for the Long Run. Bianco points out that bonds have outperformed stocks over every period for about 30 years, and Siegel claimed that couldn’t and wouldn’t happen. He ponders how Siegel could publish a book touting stocks at almost the exact peak of a long-term bull market.

We have called this generation’s outperformance of bonds over stocks the biggest investment theme everyone has gotten wrong. Over the years, when we note this, many say this is the most bullish argument they have ever heard for stocks, as this trend has to reverse. However, as the tables above highlight, this argument has been made for years and been wrong for years.

Add Dr. Siegel to this list.  His thesis was non-controversial in 1994 given the dogmatic belief returns increased with risk and stocks were a growth instrument while bonds were not.  Events interceded.  Now, in hindsight, we know that the biggest investment theme most missed over the last generation was the huge outperformance of bonds over stocks.

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