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On July 11, 2009, in a column by Jason Zweig, the WSJ asked, “Does Stock-Market Data Really Go Back 200 Years?”
Here are some quotes from this article:
The common stock emperor has no clothes ..
… brokers and financial planners keep reminding us, there’s almost never been a 30-year period since 1802 when stocks have under performed bonds.
…These true believers rely on the gospel of “Stocks for the Long Run”, the book by finance professor Jeremy Siegel of the Wharton School at the University of Pennsylvania …
Another emperor of the late bull market, it seems, has turned out to have no clothes.
The article points out, what many have known for a long time — it simply is not true that a diversified portfolio of common stocks, if held for the long term, will almost always out-perform bonds.
This is what is called on these pages, The Common Stock Legend — an academic fantasy based on faulty statistics and sloppy reasoning.
Blind faith in the “Common Stock Legend” has led millions of investor-sheep down the road to perdition, culminating in the Crash of 2008 and the wreck of many retirement plans.
A sign of the times
Now, Jason Zweig, the author of this article, is not really a leader in critical investment thinking, but rather a follower — and this is what makes this article all the more interesting.
I regularly read Mr. Zweig’s column to keep informed of commonly-held investment beliefs.
Even Professor Siegel has long had second thoughts about the matter, as indicated in the article, “Common Stock Legend: Professor Siegel’s Epiphany”.
The fact that the Common Stock Legend was based on faulty statistics has long been known.
Stocks for the long run?
That the Wall Street Journal would put this in a headline (even followed by a question mark) indicates that the long-held doctrine of blindly holding “Stocks for the Long Run” is not such a good idea after all.
When this trickles down to the least informed of common stock investors, market behavior will change; flows of funds will be altered.
The Crash of 2008 seems, indeed, to have been a cusp of history.
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