AA,
OK, so that's 2 25-year periods out of the 45 that are in range from 1929 to 1999, resulting in a very low probability of cash performing better over 25 years than the market index (S&P500, say).
(Yes, I know that this is a very simplistic analysis, but should make the basic point clear).
Of course, the assumption is that you cannot tell how any particular year is going to turn out in advance.
Liquidity, indeed, is an issue. The problem, however, is a cyclic one. The more liquid a market, the more efficient it is, hence it is harder to make money there by trading. So, as equities market get more and more liquid, it becomes harder and harder to make money by trading.
Note the present lament over rising volatility. This, however, was predicted in a lecture by Black long back (something like the mid 80's), that as markets become really efficient volatility will increase phenomenally as new information is immediately incorporated in the market prices, thus making money making opportunities non-existent. Thus, as traders are making the market more efficient via liquidity-and-information-backed increased trading, profit opportunities are being replaced by whiplashes.
-BGR. |
