Sign in
Become a MarketWatch member today
Howard Gold's No-Nonsense Investing Archives | Email alerts
July 15, 2011, 12:01 a.m. EDT
By Howard Gold
NEW YORK (MarketWatch) "â? My thinking has changed a lot over the last few months.
I began to get bullish last summer, just before Federal Reserve chairman Ben Bernanke announced the second round of the Fed's "quantitative easing"? program. Stocks and other risky assets took off, driving the Standard & Poor's 500 index up 30% to its April 29 high.
Credit rating agencies moved closer to an unprecedented downgrade of the U.S.'s debt, but the financial markets don't seem to be too worried, Katy Burns reports.
But since mid-April, I've become increasingly nervous and skeptical because of seasonal factors and a lot of fundamental obstacles to the markets' advance.
Read Howard's warning about a "perfect storm"? for the markets in MoneyShow.com.
I've followed my own advice and taken some money off the table, selling some of my stock mutual funds and ETFs. (I don't own individual stocks.)
And I don't plan to put that money back in to the market, even after this week's statements by Fed Chairman Ben Bernanke that he'd consider more monetary easing. Read more on Bernanke's testimony to Congress this week.
Obviously I've had a good run and don't want to push my luck. But more importantly I've been looking at some research that defies the conventional wisdom that investors should keep a lot of stock in their portfolios even as they age, because only stocks protect investors against inflation and outliving their nest eggs.
That concept "â? the need to hold a lot of stock at all stages of life "â? may be the single most wrong-headed idea in investing now. Retirees who took the advice of many financial planners had 60% to 70% of their assets in stocks when the financial crisis hit. Those who couldn't hold on may have suffered irreparable losses.
And as Robert Powell pointed out recently, selling stocks into a falling market "â? which far too many people did in 2008 and 2009 "â? can create a cascading effect that reduces returns for years to come. Read more on why retirees need fewer stocks and more annuities.
But I wanted to focus on the very premise that stocks necessarily outperform everything else over long periods of time, which should mitigate their risk. The evidence appears overwhelming: Stocks have thrashed bonds, Treasury bills, even gold since 1925, a period that included at least four major crashes.
That was the argument of Jeremy Siegel's "Stocks for the Long Run,"? probably the most influential investing book of this generation.
"The safest long-term investment has clearly been stocks, not bonds,"? wrote Siegel, a professor of finance at the Wharton School of the University of Pennsylvania, who amassed data from nearly two centuries of stock market history to support his conclusions.
Recently two professors launched a formidable challenge to Siegel. In a paper that has been circulating for a couple of years and will be published in the prestigious Journal of Finance, Lubos Pastor of the University of Chicago Booth School of Business and Robert F. Stambaugh of Wharton say, in essence, that it just ain't so: Stocks may be more volatile than we think, even in the long run, so investors shouldn't own that much in their portfolios.
"There have been periods in which stocks underperformed [Treasury] bonds and bills over 30 years, [and] 40-year periods in which stocks barely [outperformed] bonds,"? Pastor told me in an interview.
Gold tallies nine-session gain of nearly $108
Google still cheap despite gains, Street says
Eight banks fail Europe's stress tests
Obama says time for debt agreement running out
Why I'm lightening up on stocks for good
I've been looking at some research that defies the conventional wisdom that investors should keep a lot of...
Radio Update: Google boosts Nasdaq, rest sag
Radio Updage: Google boosts techs, rest sag
Cool ways to profit from market's summer trends
Citigroup, financial stocks slide accelerates
Shaky housing market doesn't scare off investors
Eight banks fail Europe's stress tests
Canada stocks gain on energy strength
Gold tallies nine-session gain of nearly $108
Petrohawk buyout may hasten U.S. shale deals
BREAKING
Citigroup shares drop 2.2% to $38.18
5 money moves one euro trasher is making now
Zillow raises IPO price range ahead of debut
U.S. stocks retain earnings edge
Gold tallies gain of nearly $108 in nine sessions
In charts: Confidence and consumption
Gold closes up 0.05% on day, up 3.2% on week
Gold prices tally gain of $107.50 in nine sessions
August gold closes at $1,590.10, up 80 cents
Euro-zone leaders to discuss Greece at summit
Friday's biggest gaining and declining stocks
News Alerts
Video: US Week Ahead
The Economy
Commentary
Read Full Article »