Equities Are Doomed. Long Live Equities

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The lousy returns to come for equities, as PIMCO's Bill Gross predicted recently, may not come true. Of course, governments, in debt and piling on crazy spending, could damped the economy world wide. But I might wager that other calls that "equities are dead" are not going to come true. 

Here at WealthManagement.com and REP. magazine, we receive loads of books each year on finance, investing strategies, business, leadership and other how-to-invest-in-various-financial-instruments books. The ones I like best are the ones with predictions, such as The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History, by noted prognosticator Harry S. Dent Jr. It was a New York Times bestseller.

I like to pick those books of the shelves periodically and read a chapter here or there, just to see how right their predictions were.

Oh, right. The Roaring 2000s was published in 1998 and then later published in 1999. Whoops! Dent couldn’t have called a market top any better than that! On January 31, 2008, the Dow Jones Industrials closed at 12650.36. Yesterday the DJI closed at 12795.96.

I particularly liked the “Next Great Population Shift and Real-Estate Boom” section of the book.

Dent later followed that book up with, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History. That was published on January 6, 2009. Heh. Wrong again. On February 27, 2009 the Dow Jones Industrials hit a low of just a touch over 7062.93; at yesterday's close, that represents an 81% gain.

I am not picking on Harry Dent Jr. Predicting the future is awfully difficult. I wouldn't venture a guess.(Well, that said, I still believe the U.S. federal government entitlement programs might bankrupt us all in a handful of years; they account for 88% of spending now as it is. A digression: Peter G. Peterson is the Blackstone Group; his 1999 book, Gray Dawn: There's an Iceberg Dead Ahead. It's Called Global Aging, and It Threatens to Bankrupt the Great Powers, turned out to be pretty spot on. Oh, and as did his 2004 book, Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It, also seems like a direct hit, prediction-wise.)

I guess what I am saying is people (even many investment pros) tend to forecast naively; that is taking recent trends and projecting them into the future. I agree with Howard Kurtz, author of The Fortune Tellers: Inside Wall Street's Game of Money, Media, and Manipulation. As financial advisors, be careful before following media blitzes and Wall-Street driven publicity bandwagons.

 

I guess what I am saying is people (even many investment pros) tend to forecast naively; that is taking recent trends and projecting them into the future. I agree with Howard Kurtz, author of The Fortune Tellers: Inside Wall Street's Game of Money, Media, and Manipulation. As financial advisors, be careful before following media blitzes and Wall-Street-driven publicity bandwagons.

I guess what I am saying is people (even many investment pros) tend to forecast naively; that is taking recent trends and projecting them into the future. I agree with Howard Kurtz, author of The Fortune Tellers: Inside Wall Street's Game of Money, Media, and Manipulation. As financial advisors, be careful before following media blitzes and Wall-Street-driven publicity bandwagons.

As a financial advisor, I would stay away from predicting returns, much less selling your services based on your portfolio returns. As you know, it’s better just to help clients set goals, figure out a financial plan and invest according to their risk tolerance. It’s true that any market index can flat line (with periodic dives) for two decades, but, with proper care, one can grow a client’s pile of money over the long term through diversification and prudence.

Wait. Just a few years ago, after the experience of the “roaring 2000s,” prognosticators were saying diversification was dead. The markets were moving together worldwide. That reminds me. In July of 2009, our cover headline and deck: “Everything You Know about Asset Allocation Is Wrong.” Hmm.  

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