The capital markets of the last quarter century have been incredibly generous to us. Since
mid-1982, the S&P 500 index has advanced at a solid 13.9% annual clip, while 10-year
Treasury bonds have posted annualized returns of 9.8%. With annual inflation averaging
just over 3%, this means that investors have seen their real wealth double every seven
years in stocks and every 11 years in bonds.
But, past is not prologue.
Would a bond investor, looking at 25-year returns of 10% and current long bond yields of
5% be foolish enough to expect the next 25 years to deliver 10%? Of course not. They’d
recognize that yields started in 1982 at 14% and had plunged to 5% over the next 25
years, earning hefty capital gains on top of a yield averaging 7% over this span. With
current yields of 5%, they’d expect 5%....Complete Article
I intend to get back to answering more reader questions, and doing it through posts. I’ve been somewhat derelict in responding to comments, and I want to do it, but time has been short. Here is a start, because I think the answer would be relevant to a lot of readers.
From a reader in Canada:
I enjoy your writing as many of your comments generate a wider perspective than my own. There is always something to learn.
I was too young to appreciate the last stagflationary period. Yet, I need to manage my portfolio. My approach is more ETF based, whereas, I see that you prefer specific stocks.
I struggle in anticipating the currency impact on my foreign holdings. I’m a Canadian based investor. The simple solution is to pull in my exposure and be more Canada centric. This idea conflicts with my goal to have my portfolio weighted in similar fashion to the global markets (i.e., Canada is a very small percentage relative to the total). I also do not subscribe to the excessive weighting in gold as a major investment theme. To me, it’s insurance to help offset risk elsewhere.
I’m not asking for specifics as you are not familiar with my situation. Do you have any recommended reading or suggestions to help me test my thoughts and to identify options, so that I can arrive at a better decision?
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Featured Research Selection
BHP Billiton affirms future growth of demand for commodities
Charles Goodyear, CEO, BHP Billiton Ltd. in the company's August 22, 2007 Annual Fiscal Conference Call, excerpted below.
"...We believe that the industrialization and urbanization that has driven China’s growth will continue for several decades, as billions of people strive for a better quality of life. This growth is resource intensive, and it represents a step change in resource demand. Once people get a view of a better way of life, and governments see that as a good thing, it’s very difficult to put the genie back in the bottle. And while we talk about China, India has a number of fundamental drivers that are quite similar. We also say that we see India as being ten or fifteen years behind China, but as you can see from the chart, they’ve begun that journey...
...Now while the U.S. market remains important, it’s certainly not as important to commodity markets, as we saw 10 or 20 years ago. The growth that we’ve seen in India and China dwarfs the incremental movements in commodity demand in the United States...
...Many investors have simply failed to appreciate that China and India are domestic economies...
...but when you talk to people in China and India, they’re focused on strong demand growth, they’re focused on the shortage of raw materials, they are focused on their domestic market. Their fundamentals remain very much intact...
posted on: September 20, 2007 | about stocks: OIL / USO / DBO
Oil's low close of $50.48 on January 18th, 2007 seems decades away as prices are up 62% since then.
With T. Boone Pickens forecasting $100 oil (thankfully not this year), we looked back at historical price moves for the commodity since 1986.
Bull and bear markets are defined as 20% moves. Notably, the average gain for oil in a bull market is 62.89% (we are up 62.32% right now); the average length of a bull market is 226 days (we are at 245 days right now). See Chart (Complete Story)
My bullish stance on gold is old hat by now, but that does not take anything away from my excitement to keep riding this profitable play.
I have also for a while been favoring gold bullion relative to US industrial stocks, actually relative to most mature-market equities. As a matter of fact, I took Richard Russell to task on July 25, 2007 on his argument that gold’s outperformance of the Dow Jones Industrial Index might have been reversing when viewing the ratio’s long-term trend line. Let’s see how this has panned out over the ensuing few weeks.
The chart below shows the gold price relative to the Dow. A rising trend line indicates gold outperforming industrial stocks, and vice versa...[Chart]
The yellow metal has undoubtedly had the better of the Dow since breaking out of a two-month sideways pattern in mid-July. Running a MACD oscillator on the relative chart still shows gold outperforming, but it is starting to look somewhat toppish and the yellow metal may first catch its breath near-term before the outperformance trend is continued.Complete Story
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