● Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance
By Cullen Roche
Q&A with author via The Reformed Broker (Josh Brown)
JB: You cite “Stocks for the Long Run” as a myth we need to get over as investors – and yet there is not a single twenty year period going back to 1926, an eight decade span, in which stocks have shown a negative return. In addition, stocks have returned something on the order of 5% per year during this period even after adjusting for inflation and taxes – bonds have shown something closer to 1% when adjusted for the same factors during this time. So, why not “stocks for the long run”? What am I missing?
CR: I am a hopeless optimist at heart as I think most Americans are, but I also know that we have to look at the bigger picture here and keep things in perspective. I say, be optimistic in the long-run, but not naively optimistic. While it’s true that stocks are generally a good long-term bet it’s also true that markets are comprised of irrational participants operating in a complex dynamical system. And that means this system is actually much more fragile than many presume. And that’s why we see prolonged periods of poor equity market performance such as Japan over the last 20 years, Greece, China, etc. The US economy and markets are a powerhouse, but I don’t think it’s prudent to assume that that powerhouse is impervious to sustained periods of poor performance as we’ve seen in many other global equity markets in recent decades.
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