The "Death" of Equities Highly Exaggerated

By Gary Silverman, CFP®

A bit more than forty years ago (August 13, 1979, to be exact) one of the most famous front pages dealing with investing came out. It was the cover of Business Week. On the front cover it said:

THE DEATH OF EQUITIES

The story talked about how inflation was destroying, and would continue to destroy, any chance of earning a profit by investing in stocks. You may have noticed that since that time the stock market has not exactly laid down and died. 

It may have seemed they were right at first, since the market went down and hit a low in 1982. From that point until now, the overall return has been around 7000% depending which index you wanted to measure it with. Still, they weren’t calling a short-term market move…the prediction was a long-term shift in the nature of the equity markets.

Business Week at least admits it was a tad off on the prediction. But that hasn’t prevented countless other magazines, economists, financial think tanks, analysts, and the general public from pronouncing many things in investing dead over the years.

Around the end of 1999 I read professional and academic white papers and the general press declaring that we would no longer see a true bear market again. Instead all we would see in the future would be rotating sector bears where parts of the market would experience prolonged declines, but not something that would cause the overall markets to go down. 

Then we started three straight years of overall global market declines.

These days, I hear that value stocks will never give good returns, that inflation is dead, and that foreign stocks will underperform US stocks from now to eternity.

Who knows, maybe they are right. I’m not a prophet. I can’t predict the future. Well, I can predict it, I just happen to know that I’m probably wrong. Still, while history rarely repeats exactly, stocks go down and up with the overall trend being up. Value stocks do as good or better than growth stocks across long swaths of time. Inflation runs in cycles, still runs in cycles, and good luck figuring out what the current cycle will end up like. And foreign stocks do just fine compared to US stocks—meaning that sometimes they trounce us and sometimes we trounce them.

One prediction I do feel comfortable making is that we will continue to hear predictions of the death of aspects of investing. Humans tend to look at the recent past to predict far into the future. And even if they take a longer-term view, sometimes cycles can take decades, so they seem like forever. That’s why when you stick to your guns you can be disappointed and when you shift your strategy you can be disappointed.

In other words, while some parts of investing look dead at times, they’re really just hibernating. And when things seem like they will last forever, they remind you they don’t.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.