RE: Investing

From: James Rogers (
Date: Wed Jun 07 2000 - 09:32:31 MDT

On Wed, 07 Jun 2000, altamira wrote:
> Well Brian, I took a look at, but I couldn't find the figures you
> mention in your post (11% average yield for over 75 years). My suggestion
> to hold low-risk bonds to maturity and then reinvest, as opposed to
> investing in the stock market(including mutual funds) is based on my
> observations of my own and my clients' portfolios, and some research I did
> when I was at the University of Texas School of Business. I used S&P 500 as
> my data source, because they tracked the widest variety of stocks. It's
> been a long time, and I don't remember the exact figures, but in general I
> don't think you can depend on stocks to do much better than break even at
> best after inflation is taken into account. It's true that some people DO
> get rich in stocks. Some people get rich from playing lotteries too. I
> know, I know, a lot of people have made money in the stock market lately,
> and I do try to keep an open mind. Maybe I messed up when I was doing my
> research. Maybe I tended to attract clients who were unusually bad at
> playing the stock market. Maybe things have changed. But has not
> convinced me that I'm wrong.

Brian is correct. Depending on how you calculate it and the adjustments
you take into account, the average return of the stock market is in the
9-13% range annually when averaged over decades. Most people cite figures
in the 10-12% range, which Brian did. These figures go back to when the
American stock market was created in this country. In fact, investment in
individual stocks are among the very best long-term instruments in terms
of beating negative return factors such as taxes and inflation.

The mistake people make is forgetting that this is the average for the
entire market. If you put all your money in one or two stocks (especially
ones of dubious value), it obviously will not reflect the market as a
whole -- this is why diversification is so strongly recommended by
investment advisors. A properly diversified portfolio (or an index fund
if you are lazy) will never fail to yield good annual long-term returns
for all practical purposes. Short of a serious statistical anomaly and
poor investment practice, the stock market provides some of the safest and
best investment instruments available.

In short, a blind monkey with a diversified portfolio can expect an 11%
return over the long-term. A smart person with good investment practices
can usually do significantly better and rarely fairs much worse.
Unfortunately, there is an uninformed percentage of the investing
population that is not content to simply "ride" the market and tries to
beat it through pure luck, an unnecessary risk. These people should have
listened to the blind monkey.

-James Rogers

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