Don’t Believe The Hype About Stocks

Today’s Wall Street Journal contains an interesting review of the decade in stocks (free link so get on over there and read it). The article points out the this decade’s dismal stock returns are worse than even the 1930′s. Furthermore, inflation-adjusted returns lag even those of the 1970′s, which was marred by inflation. It has truly miserable decade for the undiscerning stock investor.

For most investors, ten years would be considered long-term. These stark numbers should put to rest the myth of “stocks for the long run” and any notions that valuations don’t matter. They do. And as the article points out, so do dividends, which comprise a large portion of long-term stock returns. Unfortunately, average stock yields still lag behind historical averages, leaving investors more reliant on price appreciation of stocks which are already “over-appreciated.”

Ultimately, decades don’t tell stories — humans do and the overlay of a defined time period onto market events are purely a mental construct. Investment returns are not predicated on getting the next decade’s story right; rather, they will come from developing and implementing a cohesive investment strategy. Here at the Enlightened American, that means using a value investing foundation and broad, obvious macro trends as the basis for picking our core portfolio and adding in absolute-return and options strategies to diversify our asset allocation profile.

Those readers interested in similar strategies are encouraged to check out our new subscription service, EA-Premium.

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