Hi Sir Ivor
Your raise very valid questions. I have argued that the stockmarket has been the best performing investment in all economies over the long term. Therefore, every long term investor should be 100% invested in the stockmarket. I have also suggested that they should not attempt to time the market.
You have accepted the historical fact, but you ask why has it done so and why should it continue ?
I got up early this morning and reread <!--EZCODE ITALIC START--> Stocks for the Long Run<!--EZCODE ITALIC END--> by Jeremy Siegel to see could I find an answer. This is what he says:
<!--EZCODE QUOTE START--><blockquote>Quote:<hr> The reasons for the persistence and long-term stability of stock returns are not well understood. Certainly the returns on stocks are dependent on economic growth, productivity and the return to risk taking…
Political or economic crises can throw stocks off their long-term path, but the resilience of the market system enables them to regain their long-term trend. Perhaps that is why stock returns transcend the radical, political, economic, and social changes that have impacted the world over the past two centuries.
The superior returns to equity over the past two centuries might be explained by the growing dominance of nations committed to free-market economics... The robustness of world equity prices in recent years might reflect the emergence of the golden age of capitalism… Yet even if capitalism declines, it is unclear which assets, if any, will retain value. <hr></blockquote><!--EZCODE QUOTE END-->
So here was I on my own struggling on my own to answer your probing questions, when Professor Siegel can just say "The reasons …are not well understood".
<!--EZCODE BOLD START--> Investor returns from market peaks<!--EZCODE BOLD END-->
<!--EZCODE QUOTE START--><blockquote>Quote:<hr> Many investors, although convinced of the long-term superiority of equities, believe that they should not invest in stocks when stock prices appear at a peak. But this is not true for the long term investor. <hr></blockquote><!--EZCODE QUOTE END-->
Siegel looked at 30 year holding periods from the major market peaks of this century. From the 1929 peak, for a $100 investment, the total real return on stocks was $565 compared to $141 for bonds and $79 for cash.
From the January 1966 peak, the total real returns were $447, £205 and $145 for stocks, bonds and bills.
The average 30 year return after the 6 stockmarket peaks ( 1901, 1906, 1915, 1929, 1937 and 1966) was $510 in stocks, $177 in bonds and $125 in bills.
<!--EZCODE BOLD START--> Where does all this leave me ? <!--EZCODE BOLD END-->
I have two concerns. I would like the book to be correct. I don't want to either overstate or understate the case for equities. But I also want to know what to do with my own investments.
I have decided that, apart from my home, I will stay fully invested in equities. In fact, because I have a mortgage, I have effectively borrowed to invest in equities.
I have not yet decided how to rewrite the bits in the book. I think I will leave the overall advice stand and include any well written CounterViews. Sir Ivor, I would be delighted if you would write a CounterView which I could include.
Brendan