Why I’m lightening up on stocks for good
Commentary: Uncertain future makes equities look much riskier
...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.
Challenging conventional wisdom
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....MORE