- BCE Offers Compelling Value
- Microsoft: Phenomenal Value for a Tech Stock
- Debt Keeps Weighing Down Rio Tinto
Notes from John Mauldin's Newsletter
"In the 103 years from 1900 through 2002, the annual change for the Dow Jones Industrial Average reflects a simple average gain of 7.2% per year. During that time, 63% of the years reflect positive returns, and 37% were negative. Only five of the years ended with changes between +5% and +10% -- that's less than 5% of the time. Most of the years were far from average -- many were sufficiently dramatic to drive an investor's pulse into lethal territory!Mauldin then makes a very important point about valuation:
Almost 70% of the years were "double-digit years," when the stock market either rose or fell by more than 10%. To move out of "most" territory, the threshold increases to 16% -- half of the past 103 years end with the stock market index either up or down more than 16%!
Read those last two paragraphs again.The simple fact is that the stock market rarely gives you an average year. The wild ride makes for those emotional investment experiences which are a primary cause of investment pain.
The stock market can be a very risky place to invest. The returns are highly erratic; the gains and losses are often inconsistent and unpredictable. The emotional responses to stock market volatility mean that most investors do not achieve the average stock market gains, as numerous studies clearly illustrate."
"My contention is that we should not look at price, but at valuations. That is the true measure of the probability of success if we are talking long-term investing.
...
If you start in a period of high valuations, you are NOT going to get 8-9-10% a year for the next 30 years; I don't care what their "scientific studies" say. And yet there are salespeople (I will not grace them with the title of investment advisors) who suggest that if you buy their product and hold for the long term you will get your 10%, regardless of valuations. Again, go to the Crestmont web site, mentioned above. Spend some time really studying it. And then decide what your long-term horizon is."
John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
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Mauldin's newsletter in its entirety is here. Note that details on his viewpoint for European banks was omitted in my summary notes.
More 'Must' Reads:
The word 'must' is a very pushy word. The title should read "More [Why not put in the time and the energy because it is significant] Reads."
- Dan Carroll, kaChing posted a great article on the economic crisis
