The early discussion in the book is about the big change in industry weightings in stock markets in the United States and the United Kingdom between 1900 and 2019. Railroad companies accounted for 65 per cent of the US market in 1900 and 50 per cent of the UK market.
Today three largest weightings in the US are technology, health and other industrials while the UK the three largest are oil and gas, other industrials and banks. The authors had proven in an earlier edition in 2015 that an industry value rotation strategy helped lean against too much reliance on new technologies and had generated superior returns.
The three professors note the considerable risks from investing in equities and the importance of a long-term view.
“Investors were spoiled by the high returns from the 1980s and 1990s when equities seemed a sure-fire route to getting rich quickly,” the book says.
Low inflation, accelerating profit growth and the expansion in world trade and economic growth saw equities deliver an annualised return in the 20 years to 1999 of 10.6 per cent.
But over the next decade the average investor would have earned a negative real return on world stocks of 1.3 per cent per annum.
“It was simply the case that investors were unlucky and returns were attenuated by two deep bear markets,” the authors said. “This was a brutal reminder that the very nature of the risk for which they sought a reward means that events can turn out poorly even over multiple years.
“The lessons for investors are that they must take into account their own investment horizon and acceptable volatility when constructing a portfolio,” says Andrew McAuley, chief investment officer, Credit Suisse Australia Private Bank.
“The 2019 yearbook emphasises the importance of a multi-asset class portfolio to smooth out returns and to achieve investment goals. It proves that equities remain the best long-run financial investment globally ahead of bonds and bills, having enjoyed an inflation adjusted rate of return of just over 5 per cent since 1900.”
Government bonds have had their golden periods just as equities have theirs. From 1982 until the end of 2014, the world bond index gave a return of 7.2 per cent per annum.
But over 119 years equities outperformed bonds and bank bills by 3 per cent per annum and 4.2 per cent per annum respectively. In other words, there are rewards in the long run from taking greater risks.
TONY BOYD
from Just News Viral https://ift.tt/2TpQdqN
0 Comments