P/E Ratio By Decade

The guys over at Bespoke put out some great research. Here is their graph of the S&P 500 P/E Ratio by decade going back to the 1930's:

Unless you think corporate earnings are going to grow by mid-double digits and that profit margins will soon return to historic rates, long-term returns from stocks will likely be disappointing. 

Great (but useless) 2010 Outlooks

The Pragmatic Capitalist has done a great job of aggregating some 2010 outlooks from the best in the financial industry here.

I have a big problem with these outlooks and predictions. Many of them could turn out to be 100% correct, but none of them, especially those geared towards the retail investor, discuss how those predictions and outlooks should be managed. 

Some of my favorites:

• Retail magazines publish their 10-best stock picks for the next year. Great. How much do you buy of each stock? Do you hold them regardless of how far they go up or down? How much do you risk on each investment?
• Predictions that stocks will trade up next year. That's really sticking your neck out there. Stocks have historically gone up 70% of the time. Any monkey in pants can make that prediction. What would be useful would be to say: we think stocks are going up next year, but if they go below X,XXX we're getting out to reevaluate. 
• Stocks will crash next year. Okay, they might. What if they don't? Should we have a strategy to take part in stocks if they continue to go up, or should we continue to bury gold bars and ammo in the back yard regardless of what stocks actually do?

I think that the only answer is to have an investment strategy that tells you what to buy, when to buy it, how much to buy of it, and when you should sell it. 

New Asset Class

Does anyone know of a good way to access this market?

Rock Beats Paper?

In this game, rocks and other 'hard assets' do beat paper. 

Having exposure to other asset classes during last 10 years was clearly the way to maintain a portfolio. Heck, even just buying Treasuries would have been better than buying and holding stocks. But then again, who buys and holds stocks? Oh, right. All those millions of people that only have stocks as an option in their 401(k) and are bombarded by the Wall Street manta: buy buy buy! The DOW is going to 36,000! Stocks always come back! Right. What a load of crap. 

I don't have any problem admitting that I have no clue at all which asset class will lead over the next 10 years and which one will lag. That's an awfully big bet to make anyways, and one I don't need to. By maintaining exposure to as many asset classes as possible, and maintaining a risk management strategy, I'll ensure that I'm taking part in the best performing asset classes.

hat tip to Research Puzzle

Have You Learned Anything from the Crisis?

Another great post over at World Beta by Mebane Faber.

Data in his post:

Essentially, all risky assets including US and Foreign stocks, Commodities and Real Estate all got smacked down by at least 50% last year. Even the conservative allocation portfolios didn't do that well. He also makes a great point that compounding works in both directions: 50% down and 50% back up does not equal break even. 

Note that our solution is back up near its highs.